Ben Bradshaw: The hon. Lady is wrong; the quality of out-of-hours services is monitored and assured a number of ways: first, primary care trusts have clear legal responsibilities to provide safe, high-quality out-of-hours services; and, secondly, strategic health authorities act as performance managers. The regulators, as she will be aware, are now investigating the provider that ran the services that led to the tragic death of David Gray. I would like to update the House. East of England strategic health authority informed me this morning that it had discovered new issues of concern about Take Care Now—the provider of the services in the case in question—and its performance that predate the Dr. Ubani case. The SHA is now reviewing, with the PCTs concerned, its previous decision to continue to use TCN services, pending the outcome of the Care Quality Commission investigation.

Ben Bradshaw: As a doctor himself, the hon. Gentleman will know that this country has among the highest levels of vetting of professionals of any country in the world. Employers have a legal duty to ensure that all doctors whom they appoint are fit to practice, and all doctors, including locums, must be on an official performers list, and must be registered with the independent regulatory body, the General Medical Council. He is right: we are talking about an absolutely terrible case, for which the doctor has been tried in his absence. As a result, as I informed the House, the SHA, with local primary care trusts, is reviewing the contract given to the company concerned. There are clear legal obligations on PCTs and strategic health authorities to ensure that their out-of-hours services are safe. Something went terribly wrong in the case that we are discussing, and he is right that it is important that both the local and national NHS learns the lessons as a result of it.

Alan Johnson: I hope to be able to say more about the vaccine in the debate on Thursday. British scientists at the Health Protection Agency in Colindale have identified the strain—the so-called isolate. They have passed that to Potter's Bar, where the National Institute for Biological Standards and Control will now do the work of producing a vaccine. That work has been completed, and the next stage is what I hope to be able to tell Parliament about on Thursday. Efforts are going on in this country and abroad to ensure that we get a vaccine developed as quickly as possible. Of course, it would take at least five to six months to manufacture and produce it. However, we hope that having taken the first step, whereby we have identified the isolate, the next stage—to get the vaccine from that—is very close.

Nick Palmer: I am grateful to my right hon. Friend for that reply. I have read the brochure that the Department circulated with great interest, and it is helpful. However, I am sure that my right hon. Friend agrees that there is some difficulty with the substantial overlap between the symptoms of normal flu and those of swine flu. What would she recommend that my constituents do if they seem to have a severe case of what may well be normal flu? Should they go to their GP, ring a helpline or wait and see?

David Tredinnick: Earlier the Secretary of State said that the isolate had been identified and he spoke about the work of Potters Bar on the vaccine. What international co-operation has there been between the Department and other countries, or are we at risk of seeing vaccines being almost completed in countries round the world, yet without any proper understanding between them?

Dawn Primarolo: I can assure the hon. Gentleman that we are co-operating with our European neighbours, the World Health Organisation and the United States. That information is shared, because the isolation of the virus in the UK, for instance, is the isolation of the virus that happens to be in the UK, and it is compared with the isolates of the virus in, for instance, the United States. There is absolutely international co-operation on the issue to ensure that the development of a vaccine, if that is possible, is shared equally on a world basis.

Andrew Turner: I thank the right hon. Lady very much. There was an improvement in the availability of dentists on the island until the NHS abolished registration. We now have figures that show the number treatments, rather than the number of individual patients getting treatment. Will she explain why the figures are now taking this form, rather than the old form?

Alan Johnson: What we have done since the allocations that took place last December—it was a two-year allocation of 5.5 per cent. each year and included the ability to draw down £800 million of surplus—is to say that there is a message here. It comes from the chief executive of the NHS as well, and it is that the NHS has to prepare for a time when we will not have such spectacular increases in growth. We brought the level of investment up to within touching distance of the European average. Now that we are there, at around 9 per cent., it is inconceivable—irrespective, incidentally, of the economic situation—that such large increases will continue. The message from the chief executive of the NHS and from me is that we need to think in a five-year time frame, including not just the next two years, but the three years to follow.
	We cannot say at this stage what the expenditure will be in the NHS, but we can say that it will continue to be our absolute priority. As the Prime Minister told the Royal College of Nursing yesterday, we hope very much to ensure that there are real-terms increases over the coming years, although they may not be at the same level as in the past.

John Robertson: My right hon. Friend will share my concern about what are labelled "legal high" drugs, which are appearing not only on the internet but in shops. That label hides the real nature of the drugs. What is my right hon. Friend doing to assess the position, to try to stop the drugs from appearing—especially in shops—and to protect children who have access to them?

Jo Swinson: One in five people in the United Kingdom suffers from hay fever, especially at this time of year, and one in three people will deliver an allergy at some point in their lives. What are the Government doing to raise awareness among GPs of immunotherapy as a treatment that can tackle causes, not just symptoms, and bring lasting relief to many allergy sufferers?

David Winnick: On a point of order, Mr. Speaker. At column 548 in yesterday's  Hansard, you explained all the reasons why the Metropolitan police have been called in over the alleged stealing of a disc, which was probably sold to  The Telegraph. I have absolutely no disagreement with all the reasons that you gave, but, on reflection, I wonder whether it would be right for you to apologise to my hon. Friend the Member for Vauxhall (Kate Hoey). When she raised a point of order, you referred to her "public utterances" and "pearls of wisdom".  [ Interruption. ] May I put it to you, sir, that a Member of Parliament should be able to raise a point of order without there being such personal comments, which some of us at least—not all of us, apparently—consider inappropriate. Should not the Speaker always refrain from personal comments?

Surface Water and Highway Drainage Charges (Exemption) Bill

Mike Hall: I beg to move,
	That leave be given to bring in a Bill to require water companies to exempt from surface water and highway drainage charges places of worship, non-profit making sports clubs, scout groups and guide associations; and for connected purposes.
	In short, the need for this Bill has been created by the water regulator, Ofwat, when it called on water companies to alter the way in which they charged for surface area and highway drainage, and by the very short-sighted actions of United Utilities, when it implemented changes to the way in which it charged non-household customers for surface water drainage—incidentally, those changes were approved by Ofwat.
	On 30 September 2003, Ofwat announced the outcome of its review into how water companies charged for surface water drainage. It concluded that the fairest way to charge for surface water drainage was by charging non-household customers on the basis of the size of their estate—that is called site area charging. However, Ofwat failed to implement its own guidance in those matters and did not carry out a regulatory impact assessment on the change of policy. Astonishingly, it did no work on the impact that surface area charging would have on community voluntary groups.
	What Ofwat did instead was to warn water companies that a change to surface area charging may have a negative impact on sensitive properties such as schools, hospitals and places of worship. In general, Ofwat warned water companies that they would need to take into account the scale and speed of any changes to see whether they were reasonable and acceptable to customers. United Utilities took Ofwat's advice and brought in surface area charging, but it did not take into account the scale and speed of the changes, the impact that that would have on its customers and whether that was reasonable or acceptable.
	In defence of the change, United Utilities stated that it had been required by Ofwat to bring in surface area charging. It went on to claim that the changes would be revenue neutral. On that point, United Utilities has not been able to produce figures that substantiate that claim.
	It was not long before churches, community sports clubs and scout groups contacted me about media reports and contacts from their parent organisations warning that they would be required by United Utilities to pay massive increases for surface area and highway drainage. Before the change to surface area charging was introduced, such organisations had been granted significant discounts on their water bills because of their status. Their bills were based on the rateable value of their property, which was either zero or heavily discounted.
	I took up these cases with United Utilities. Sadly, in several cases, it emerged that United Utilities had not been billing the organisations for water rates at all, and it then decided to issue them with water bills based on surface area charging. The bills were also backdated for seven years. That was a particularly insensitive approach by United Utilities.
	I will give two examples of just how much the water bills are going up. The 1st Halton scout group in my constituency saw its water bill go up from £37.80 to £198, which equals a massive 424 per cent. increase. St. Mark's church and the Bethesda church in the Hallwood ecumenical parish in Runcorn are billed jointly. In 2007-08, they did not pay any water rates. In 2008-09, their surface area charge went up to £181.76. That is set to rise to approximately £2,000 by 2010-11. That is a massive increase that the Hallwood ecumenical parish will not be able to afford.
	For places of worship, community sports clubs, scout groups and guide associations, every extra £1 they spend on surface water drainage is £1 less that they have to spend on the valuable services they provide for their parishioners, communities and members. In the area covered by United Utilities, there are more than 2,000 faith buildings and 600 not-for-profit sports clubs. There are also 900 scout groups in the United Utilities area which are going from strength to strength. Over a three-year period, those groups will face an increase in bills of up to around £2,000 per annum. If those increases are implemented, for many groups it will mean bankruptcy.
	There has been considerable criticism of the way in which the surface area charging scheme has been implemented for places of worship, community sports clubs, scouts and guides. That criticism has come from both sides of this House, and we have seen concerted effort from hon. Members, especially through the all-party scout group, to try to change the policy. Interestingly, Ofwat has now started to criticise United Utilities' approach.
	On 21 January, Ofwat issued a statement saying that United Utilities had poorly implemented the new system of surface water charges. In particular, it had failed to communicate the fairness and environmental benefits of the new system and failed to take into account the impact on the 2,000 faith buildings and 600 not-for-profit sports clubs in its area. Ofwat went on to announce that United Utilities had agreed to a one-year moratorium during which surface area charges would be frozen at 2008-09 levels for faith buildings, community sports clubs, scout groups and guide associations.
	At face value, that was a much welcomed measure. However, I am very concerned that this one-year moratorium will only delay the implementation of surface area charging and will not result in a charging policy that is both acceptable and fair to those groups. The reason why I am concerned is that Ofwat has made it clear that United Utilities should use the one-year moratorium to work with customers to communicate the need for the new charges and offer advice on how they can implement environmental improvements which will help them to reduce costs significantly.
	Ofwat has also said that United Utilities will use the moratorium to create a new time frame for the implementation of the surface area charging scheme by spreading the remaining charge over a longer period of time to allow time for customers to take measures that will offset future costs and also benefit the environment. On that basis, at the beginning of the financial year 2010-11, places of worship, community sports clubs, scout groups and guide associations will still be faced with substantially larger bills for surface area drainage. Simply altering the implementation date is not good enough. Those organisations want to see a scheme that places them back where they were prior to the change.
	Ofwat has made it clear that certain water companies have been able to bring in changes to charges that have been beneficial to the communities they serve, and it cites Severn Trent Water. Severn Trent has an exemption for community and voluntary groups from surface area charging. It is very popular with those groups, for understandable reasons, and that is why there have been no complaints to Ofwat about the charges under Severn Trent. Unfortunately, Ofwat has instructed Severn Trent that the exemption cannot continue and that it must re-visit the scheme and remove any subsidies.
	Ofwat has made it clear to water companies that it will not approve any tariffs for surface area charging that involve cross-subsidies, are based on rateable values or involve exemptions. Ofwat has also instructed all water companies that their tariffs for surface area charging have to be approved by November this year. Conversely, Ofwat has not said what types of charges other than surface area charging will be acceptable. Unless something is done now, places of worship, non-profit making sports clubs, scout groups and guide associations will still be faced with the bills, which will have been delayed for only 12 months.
	United Utilities and other water companies have fallen foul of the same directives from Ofwat. We have here a classic case of unintended consequences of the actions of the regulator, and only the regulator can break the deadlock and put things right. United Utilities and other water companies say that they do not have the legal scope to bring in a scheme for surface area charging that will benefit places of worship, community sports clubs and guides and scouts.
	The Bill sends a very strong message to Ofwat that it must act now to break the deadlock, and must start to be part of the solution and stop being part of the problem. If action is not taken now, it will have a massive impact, with massive water bills closing down places of worship, community sports clubs, scout groups and guide associations across the county. The purpose of this Bill is to provide certainty that such a scheme is possible by bringing forward legislation that exempts places of worship, community sports clubs and guides and scouts from having to pay surface area drainage charges. I commend my Bill to the House.
	 Question put and agreed to.
	 Ordered,
	That Mr. Mike Hall, Andrew Miller, Helen Southworth, Derek Twigg, Mr. George Howarth, Ian Stewart, Mr. Greg Pope, Mr. Neil Turner, Janet Anderson, Dr. Brian Iddon, Tom Levitt and David Heyes present the Bill.
	Mr. Mike Hall accordingly presented the Bill.
	 Bill read the First time; to be read a Second time on Friday 16 October and to be printed (Bill 94).

The Chairman: I am very grateful to the right hon. Gentleman, otherwise we might never have started at all.

Mark Hoban: I beg to move amendment 1, page 3, line 16, leave out '28%' and insert '25%'.
	After that rather shaky start, Sir Alan, I am sure that the rest of our Committee proceedings will move more smoothly.
	Clause 7 sets the main rate of corporation tax at 28 per cent., but the amendment—which I also tabled in Committee to last year's Finance Bill—would reduce that to 25 per cent. We have tabled amendment 1 for the same reasons that applied last year. We believe that the headline rate of corporation tax is uncompetitive, and that it impacts on the UK's attractiveness as a place to do business. If we are to look forward to how the economy will develop once the recession is over, we need to think about making sure that we are as competitive as possible when compared to other nations.
	Some may argue that now is not the time to think about reducing the headline rate of corporation tax and that we should focus first on the current economic and fiscal crisis, but I do not believe that we can afford to ignore the UK's competitive position at this time. I shall set out in more detail why I think that the amendment is important and necessary and why I believe that the Committee should support it.
	Five years ago, Britain had the fourth lowest corporation tax rate in the EU. Now, even after the reduction in the headline rate from 30p to 28p in the 2007 Budget, we have the 19th lowest rate. The average in the OECD is 22.5 per cent., so Britain's rate is some 5.5 per cent. higher than that. That is something that we need to address. Without a change, we are likely to find ourselves slipping further down the OECD table and putting ourselves at a competitive disadvantage to other members of the OECD, the G20 and the EU.

Mark Hoban: My right hon. Friend makes some important points. I shall discuss later some of the companies that have relocated from the UK to overseas jurisdictions because of tax regimes and rates. A number of Lloyds-based insurers have moved to Bermuda, in part for regulatory reasons, but in part because of the rate of corporation tax in Bermuda. Canada is setting a clear policy goal of having the most competitive rate within the G7, because the Canadians recognise how easy it is to move from one jurisdiction to another, particularly among English-speaking countries, and how important tax is—perhaps following the Irish example, where a very low corporation tax rate was set to attract businesses into the country.

Mark Hoban: I just think that this argument about the G7 is a bit sterile and a bit stale. It says that the G7 economies are the only ones that we should care about, yet we held the G20 summit in London just last month because we recognised that the global economy is changing. Countries that were previously of relatively little economic importance to the world are becoming increasingly important to the shape of the global economy. We cannot rest on our laurels by assuming that the G7 will always remain in pole position; we cannot take that view. If that was the view that the hon. Gentleman took when he was in government, I am disappointed and surprised at him.

Robert Smith: I am interested in what the hon. Gentleman is saying about complexity and differences in the tax system. Before he moves on to Canada, can he expand on why he chose not to extend his proposed cut to ring-fenced profits and to apply it only to non-ring-fenced profits? I declare an interest as a shareholder in Shell, and an interest in North sea investments through my constituency and my membership of the offshore oil and gas industry all-party group.

Geoffrey Robinson: Having been lucky enough to catch your eye, Sir Alan, I wish briefly to revert to the question of effectively reducing the capital allowances, which would come into effect in year 1. Given the recession and its likely progression, immediate cash-benefit to companies is the very thing we need at the moment. Despite the seeming good news today, I think we all know that we are still in a precarious position and should not take anything for granted. The real need is for cash flows to companies now, so reducing capital allowances at this point in time would hit the very thing we need for the future, which is investment. The timing is particularly perverse.
	Apart from the wrong timing, we would be hitting the very area where we are already weakest, and the hon. Member for Fareham (Mr. Hoban), who led for the Opposition, should realise that. We already have a relatively low depreciation charge, which arises directly from the fact that our manufacturing sector is weak compared to our main competitors in exports and world markets—India and China, for example, are taking the lead on many consumer goods. Where we have to compete, we already have a low depreciation charge arising from our relative under-investment over the years, so driving it down still further would hit the very sector that most of our policies should be directed at improving.

John Redwood: I am a director of two companies, as declared in the Register of Members' Interests, but I wish to make some general remarks about the tax system.
	My hon. Friend the Member for Fareham (Mr. Hoban) has been quite right to say that a lower headline rate of tax could be very important in attracting more business to this country. I think he could have added that it will also affect the judgments of quite a lot of multinational businesses that already have some representation in Britain but have options over where they could carry out their various activities.
	Quite rightly, it is not legal for a company to fiddle its transfer prices by suppressing profit in a high-tax regime in order to allow the transfer of that profit to a low-tax regime by artificial means. Under this and previous Governments, the Treasury has rightly adopted methods of preventing or stopping that practice. It is, however, an entirely legitimate business strategy for a multinational with factories, service areas and operational centres around the world to decide where, at any given time, it is best to allocate particular types of business. Obviously, if a multinational has footloose business of a high-technology, high-value-added, high-growth kind which will produce a high margin and plenty of profit, it will look very carefully at the effective and, especially, the headline tax rates around the world. All other things being equal, it may then decide to put more of its high-value, high-profit business into the parts of the world that offer the most competitive headline rates.
	I am sure that, in their saner moments, Treasury Ministers agree that that is the case. They know that it happens and that it is a real possibility now, which is one of the additional reasons why I think my hon. Friend the Member for Fareham is right to press them again on whether they are certain that 28 per cent. is a sufficiently competitive rate at a time when the whole world is hungry for jobs and for higher-technology and high-value-added business, and when there is not enough business to go round and there are not enough jobs to go round.
	It is true that our debate takes place against the background of a sharp devaluation of the pound. Such a devaluation has many drawbacks. It makes us all poorer, and it pushes up inflation—although it has one important advantage in that it makes our industrial and service activity much more competitive in the short term from a British base, which I trust will limit the damage in Britain compared with that in some of our competitor economies. However, we need to think beyond the one-off impact of the devaluation. We need to think beyond the present trough of the recession. We cannot be sure how long it will take, but there will be recovery, and we need to ask ourselves that fundamental question: is 28 per cent. a sufficiently competitive rate at the present time?
	The hon. Member for Coventry, North-West (Mr. Robinson) rightly pointed out that the present Government had continued the previous Government's policy of cutting the headline rate. That was very sensible, but I think that they got stuck. I do not think that they realised how rapidly the rest of the world had moved on. In the opening exchanges today, my hon. Friend the Member for Fareham was asked if he recognised that all that we needed was one of the more competitive rates in the G7, and that if we had it we would be all right. Of course we will not be all right. The world has been completely transformed. The Prime Minister accepted that in hosting and chairing the G20. The serious competitive threat to keeping manufacturing in Britain or attracting it to Britain today comes primarily from China and India. It is a serious option for most multinational companies to switch production from the United Kingdom or Germany to China or India. Most multinational companies already have several factories in those countries, as well as having manufacturer capability in Britain, Germany, the United States or some combination of all three.
	The proposal that we are discussing goes to the heart of that issue. Why are we talking about the headline rate? Because it is the headline rate that people usually use in their simulations, models and forecasts when considering where to put their future investment. They also look at the underlying trend of policy. If, as in Canada, it is clearly a commitment to make the current rate the maximum and to say that in future it will be reduced, that will be a fairly influential factor when it comes to the judgment on the back of the numbers. If people see a Government who face a monumental deficit and who seem to think that it is only possible to secure more tax revenue by raising tax rates—itself a very dubious argument, in my view—they may well say to themselves that the Government could not be bothered to cut the rate below 28 per cent. although they knew that 28 per cent. was no longer particularly competitive, and that in a year's time they, or some other Government, might be forced to put the rate up. That is not a good background against which to make an investment judgment.
	I urge Treasury Ministers to think again. I urge them to understand that our prime competitors have much lower tax rates than ours, as well as having lower remuneration and other competitive advantages. I urge them to understand that the big investment players in manufacturing in this world already have capacity around the world, and the ability to switch. I also urge them to understand that we are talking about not just where the new factory goes, but where the work is allocated around the different factories of the world, and that if we allow our country to be perceived as more hostile to business—less competitive in tax and regulatory terms—we will start to be on the wrong end of business judgments. The people in the American, Japanese or Chinese multinational will start to say, "Well, we'll leave the old, low value-added, less profitable business in Britain because of the tax rate," and that means that Britain will lose jobs rather than create them, and that, in the end, the British plant will be the one most likely to face the closure notice because—surprise, surprise—it has the worst business and then it has the worst figures. The people in the multinationals will forget that the reason why that particular country has less good factory results is because, for tax reasons, they chose to locate a less profitable business in it. Therefore, if countries are not careful, they can find that they are on a very slippery slope indeed.
	In today's exchanges, we have already heard Labour Members voicing scepticism about whether the setting of a 10 per cent. rate in Ireland was the reason why so much business was attracted there. I can assure Labour Members that, from conversations I have had on account of my work on the policy review and for other purposes, it is clear that the low headline rate of corporation tax has probably been the number one attraction to footloose international businesses in choosing to go to the Republic of Ireland. They did not go there for the European Union grants; most of those were paid to agriculture, which was not a particularly successful sector. They did not go there to join the euro either, because they have to deal in a multi-currency world and what matters to them is the rate into the dollar, the renminbi and the rupee, so the euro is not that important. What mattered to them was that they assumed that they would run profitable businesses—and for quite a lot of years, many of them did—and it makes a huge difference to their forecast cash flows on an investment if they are keeping 90 per cent. of them rather than only 70 or 72 per cent. of them with the rest going to the Government. The Financial Secretary is a clever man, and he knows the power of compound arithmetic. The compound effects of taxing at 10 per cent. are so much more benign than the compound effects of taxing at 28 per cent.
	I do have one, friendly, disagreement with my Conservative Front-Bench colleagues in that I believe that the Laffer curve works—they are sitting up and taking notice, Sir Alan. I am trying to make our lives easier, because I believe that this is one of those rare cases where we can have our cake and eat it. I believe that if a country is brave enough to set a lower tax rate, as the Irish were in spades, it can attract a huge extra amount of business, because world business is very footloose and very sensitive to the individual tax rates on offer. The Irish moved from being a lot poorer than the United Kingdom to being a lot richer. At the same time, they moved from spending less per head to being able to spend a lot more on public services because the low rates brought in so much more revenue. Such low rates can therefore have an extremely benign effect, but there is also the reverse effect: if a country allows itself to become too uncompetitive on the headline rate, it discovers that even putting it up does not solve its revenue problem, but can actually make the revenue problem worse.
	Fortunately, so far, although we have had a run of companies leaving the country, such departures have been paced out and the Government have managed to suppress a lot of bad commentary on that, but I suggest to them that they should not push their luck any further. My hon. Friend the Member for Fareham (Mr. Hoban) produced a partial list of those companies that have gone. There are others as well, and in certain sectors, such as insurance, it is becoming a rush to get to the exit on time. The situation could be the same for some of the higher charging investment management companies, one of which my hon. Friend mentioned. This is a serious problem for the United Kingdom. To those on the Labour Benches who say, "Well, we don't want to keep those sorts of businesses if they're that sensitive to the tax rate and do not want to pay their fair due", I say that that is a very short-sighted view. Businesses are, on the whole, motivated by profit and money as well as by wishing to serve the public, but they know they have to serve the public well to generate the revenues—that is the deal—and if we are too cavalier in our approach to taxing them, we do not just lose the tax revenue they were paying in terms of corporation tax, but we lose the tax revenue they were paying in terms of the tax on their employees, the national insurance and the VAT on the money their employees would have spent in the shops. We lose a great deal of tax revenue if we become too cavalier about where businesses are to be located.
	The case is very straightforward: cutting the rate from 28 per cent. to 25 per cent. would send a very strong signal to our international competitors and, more importantly, to international manufacturing investors that this country is serious about remaining tax competitive. I hope that my Front-Bench colleagues agree that a change to 25 per cent. is the minimum that we need to do and that it is not the final resting place. I would be much happier with a rate of 20 per cent., because that would make a huge statement, would catapult us back to being a place that people talked about as a desirable location for investment and would definitely illustrate the Laffer curve—one might say that one would be "Laffing" all the way to the bank if one was to do that, because so much more business would be attracted and so much more revenue would be coming in.
	As a result of these straitened times, my hon. Friend the Member for Fareham says that we should be absolutely sure and pay for this proposal out of removing allowances. That is my second-best option—I would rather just cut the rate—but it makes more sense than doing nothing, because it does take the trick on the headline rate and I do not believe it does the damage that the hon. Member for Coventry, North-West (Mr. Robinson), who is no longer in his place, seemed to suggest. Past corporation tax reforms have cut allowances and cut rates, and they have been helpful and benign; they have usually resulted in more flows of business as long as they establish a competitive international rate that we can work with and of which we can be proud.
	I do not think that those on the Treasury Bench are communicating a strong enough sense of the danger to our economy that the current situation represents. Perhaps they are resting on the laurels of the devaluation and perhaps they do not understand how tough the situation is, particularly in the manufacturing heartlands. They are not energetic enough in making the case within government that if we are serious about rebuilding our manufacturing, we need to put in place a package of measures, and this considerably lower corporation tax headline rate would be an important first step.
	I would like this country to export more and make more, as that is part of the necessary process for recovery. A lower corporation tax rate would help to do that. I do not despise financial services. I would like us to grow and improve our financial services offering in Britain and keep London as a very important financial centre. That, too, is very dependent on a very competitive corporation tax regime. The Financial Secretary knows that I am not happy with the huge sums tipped into banks, which have grossly distorted the economy's adjustment process and have delayed the necessary adjustment in those banks. I wanted to keep them going at a much lower cost.
	Of course I did not want the banks to go bankrupt, but it is a disgrace that so much money has been absorbed in them. If we had not wasted all that money in the banks, even the Financial Secretary could have afforded my 20p in the pound proposal for corporation tax, given his view that it does not generate the extra revenue that I believe it does. That option would have been a much better competitive package for Britain than losing billions in RBS and delaying the time when RBS sorts itself out and actually generates some money for British taxpayers and for the Treasury, instead of taking away all the money that we need in order to offer a more competitive package. I hope that the Treasury will also go away and think about squeezing some money out of the banks to make the rest of British business profitable, rather than squeezing the rest of British business to try to buttress the banks.

Rob Marris: If one looks at table C6 on page 231 of the Red Book, one sees that the projected receipts from corporation tax for the financial year 2009-10 are £34.7 billion. The amendment would cut corporation tax by three 28ths—from 28 to 25 per cent. In round terms, three 28ths of the projected revenues of £34.7 billion is £3.7 billion. If one were to cut our corporation tax rate to the OECD average, which the hon. Member for Fareham helpfully informed us is 22.5 per cent., that would be a five and a half 28ths cut in £34.7 billion, which would be a £6.8 billion cut. Now that is not before us tonight. I suspect, from what the hon. Member for Fareham (Mr. Hoban) said—although he did not say so directly—that he would not pursue the logic of his position and seek to put the UK at the average rate of the OECD, but only cut from 28 to 25 per cent. That was because he wanted a revenue-neutral package, and that the counter-balancing measures that he outlined to make up for that loss—which I calculated at £3.7 billion, although I appreciate that he does not accept that figure—would come to £3.7 billion. His countervailing measures did not come to £6.8 billion and therefore he could not go the whole hog to cut corporation tax to 22. 5 per cent.
	When I hear the phrase "revenue neutral", it has the same effect as the words "efficiency savings" and my scepticism meter starts twitching markedly—

Brian Binley: I declare an interest as the chairman of an SME that employs about 140 people and that pays well below the corporate tax rate affected by the present discussion, although we are hopeful that, one day, we will get there. We do, however, service a number of companies that are in the relevant tax bracket, and therein lies my interest, because supply chains are a vital component of the whole structure.
	I shall talk about how people think about tax as much as about how accountants evaluate tax. Business men tend in the main to be more creative than accountants and they tend to dwell less on detail. It is that degree of creativity that makes the amendment interesting and it is the reason why I commend it so strongly. What the amendment proposes would create a feeling of the worth of being involved and of using money to gain more money and to grow on behalf of the nation, as well as on behalf of the people we employ. It reflects an attitude of mind—one that is often not understood by Government Members.
	Many in business get the impression that Labour Members think that business men are there to make profit and that that undertaking is in some way dubious—or even, some of the worst sort of that thinking suggests, crooked. In fact, many business men are there to create, to build and to grow, and that very objective is the driving force that creates jobs in this country. Therein lies the importance of the amendment: it would encourage creativity, which in turn encourages jobs. That is a vital part of the process in which we need to be engaged right now if we are take advantage of the green shoots that will appear, as my right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Fareham (Mr. Hoban) have said. When those green shoots appear, we need to be in a position to exploit them to the advantage of our nation. High taxation in any form does not help us to do that.
	Another point touched on by my right hon. Friend is the need to attract to this country businesses and big companies from other nations. I am amazed by the arguments advanced by some Government Members, who seem to think that our real opponents are Germany and France—that those countries should be our comparators and that, as long as we are lined up relatively sensibly with them, the world is okay. Let me tell Ministers that the world is changing dramatically and the G7 may not always be in pole position. In fact, I believe that the present elements of the G7 will not be in pole position for very much longer, because I perceive a massive, dynamic change in the world, which the present recession will only enhance. The Government need to understand that, but I see no understanding among them of that trend.
	Let me explain part of the reason I think that. I have just returned from a Department for Business, Enterprise and Regulatory Reform trip to the United Arab Emirates and Saudi Arabia, and I went to Dubai. Some might say that Dubai is having a pretty bad time, and indeed it is, because it is not a major oil-producing part of the world, but it is a hub for a massive region. People there said to me time and again, "We used to look to the west; we now look to the east." Business man after business man in Saudi Arabia and the Emirates told me that. Of course, many of them were not nationals of those countries. They were European business men who decided to settle their businesses in that part of the world because of the potential that it provided. That is what we are competing against. It is against that background that this debate is so important. It is about ensuring the recharging of Britain's natural entrepreneurial spirit. That creativity is vital, and lower tax rates inspire that creativity. I beg the Government to recognise the connection in the amendment, even at this late stage.
	I was rather surprised at the hon. Member for Coventry, North-West (Mr. Robinson), whom I admire enormously. He is one of the few members of the Labour party with real business experience. I was particularly surprised that, although he recognised that we created the lowest corporate rates of taxation in the G7, he did not seem to think that that was too important. That was a very confusing argument. I recognise the points made about the overall tax basis, but he did not see the creative, imaginative elements of the proposal, as I would expect a business man to do. That surprised me in a business man of his stature.

Stewart Hosie: I do not have a problem with lower business taxes, and I am very supportive of lower corporation tax. I have said so many times that, as part of an overall competitive framework for business, that is a prerequisite for solid economic growth. When we look back over the medium term, we can see that many countries which, when they reduced their business tax burden, in fact experienced a business tax increase year on year as the rates came down.
	None of those comments will come as a surprise to those on the Conservative Front Bench, as I have made them on many occasions. It is the case, however, as we have discussed before, that concerns arose when business taxes were kept high. Even when allowances and reliefs for investment were extended, there were concerns that that regime failed to support the good businesses that were simply getting on and running their companies, and supported only the companies or firms that invested in particular areas. I shall return to that in a moment.
	The hon. Member for Fareham (Mr. Hoban) suggested that the proposed tax cuts would fundamentally be paid for by reducing or removing allowances or reliefs, by simplifying the allowance or relief system. Although I agree with the need for a simpler tax allowance and relief system in general, I have a couple of questions about his amendment. What assessment has he made of the value of lost investments—investments that might be cancelled or delayed as a result of the proposals—if those allowances or reliefs have already been budgeted into the costs? Why has he proceeded at this point with the cut, rather than proposing a longer time scale for changes to the tax and allowance regime, which would allow the economy to benefit from the announcement effect, as we have seen elsewhere, whereby businesses come and set up in preparation for lower taxes, while mitigating the risk of investment projects being cancelled or postponed?
	I am very supportive of a lower corporation tax rate—our aspiration is to reduce it to 20 per cent.—and I am in favour of a simpler tax system, which is a good thing, as it reduces costs and burdens, and is easier for business people, their offices and their staff, to understand. However, I question the timing of the proposal. Why not say that it would take place in future, to benefit from the announcement effect, and why not tie that into a longer lead time for the abolition or simplification of allowances? Importantly, what assessment has the hon. Gentleman made of the risk of investment projects being cancelled? I want to support the proposal, but it would be useful to hear his thinking.

Robert Syms: First, I should like to draw hon. Members' attention to my interest in the Register of Members' Interests as a director of a family building business.
	We have had an interesting debate, and when we talk about first principles—tax, tax rates and competition—we often have such a debate. At the beginning of debate on the Finance Bill, we had almost a Cook's tour of Canada, Bahrain, Dubai, China and Dundee, East. That shows that we live in a competitive world environment that is not getting any easier year by year, but is becoming far more competitive. One of the examples that I used was Ireland, and a key message that has come across is that low taxes generate more revenue and jobs, attracting people to locate there. Ireland is one of our competitors and, notwithstanding its short-term difficulties, which are similar to ours as a result of asset price deflation and everything else, we must accept that this is a competitive world.
	We should not look at the question on a year-by-year basis; we need to look at the medium term. Our economic problems do not relate to one year alone, but to half a dozen years. We have to keep business in the UK and attract it to the UK. Setting a rate, a direction of travel, of 25 per cent. will make things a little easier than if we set a rate of 28 per cent.
	One of the messages to come from our financial problems has been how big some of the banks and international companies are in relation to our economy. We know that people sitting in various capitals around the world look at the various competitive differences of language, productivity and tax; all those things feed in. Although we do not necessarily need the lowest tax, we do not want to tax too much more than our competitors. That is a black mark when people are considering where they are going to invest and to locate their businesses.
	Paying for the measure by restricting the capital allowances reliefs is probably right. Most businesses that have to invest in equipment and machinery do so for reasons to do with the business and not because of the tax advantages. The hon. Member for Coventry, North-West (Mr. Robinson) has already told us that there may be an impact on manufacturing. Of course: the pound has devalued against the euro and interest rates have massively reduced. All those things should—fingers crossed—help west midlands manufacturing. So what I have been discussing is a rather good way to go about things.
	My hon. Friend the Member for Fareham (Mr. Hoban) mentioned companies such as Google and insurance companies, some of which are moving for regulatory reasons as well as the reason of rate. Such companies are more mobile. Manufacturing can move, but it is a hassle to move a plant; it is easier for an insurance company, bank, investment fund or software company such as Google to move. It is perfectly possible for my hon. Friend to come up with a calculation for amendment 1 whereby the burden on UK business would be the same but the pot might be bigger, because we might retain businesses that would otherwise consider moving—whether to Bermuda, southern Ireland or the Netherlands—and we might well attract businesses in. We have tremendous advantages as a nation. We are creative and hard-working, and the English language is a tremendous asset. That also means that we have to be competitive because a lot of other people speak English and can compete with us. Reducing the rate from 28 to 25 per cent. by restricting capital allowances and reliefs is sensible.
	My hon. Friend made some compelling arguments. At the beginning of this debate he said that five years ago we had the fourth lowest headline rate in the EU and that today we had the 19th lowest. However, as we have heard, our competition comes not only from the EU—let us face it; many EU countries are rich and successful and will get through the problems—but from the whole world. Setting a lower rate is therefore important.
	The hon. Member for Taunton (Mr. Browne) made some good points. A simple proposal that is more certain and not as avoidable is far better than having a higher rate and lots of reliefs and allowances. We see the direction of travel, but countries in the rest of the world are trying to get our business. They want to attract our companies, and they are doing so by setting more competitive rates. Unless we respond to that, we will not be defending the wealth, jobs and investment in the UK. We have to look beyond our current economic difficulties. Let us face it—we know that the corporation tax take is going to take a hit and that, even when recovery comes, there will be a lag. However, we also know that international businesses plan on a three, five, seven or 10-year basis. We should therefore plan our economic renaissance on the basis of setting rates to encourage people to look towards the medium term.

John Howell: I apologise for not having realised that in order to participate in this debate one had to be an expert on Canada, but having returned from Canada only on Saturday morning, let me give the House the benefit of an update on the situation there. The economic situation was encouraging, as were the conversations that I had with Ministers, including those in the finance team. They had a realistic view of Canada's position and direction and were keen to go out around the world and "sell" the country. Canada started with a good situation in terms of its approach to the current crisis. The stock market was doing rather well last week—not that I had time to undertake any speculation—and unemployment was under control.
	There is one great difference between Canada and the UK: Canada has a Conservative Government. One of the Committees that I have served on over the past few months considered the Corporation Tax Bill. Nothing new was introduced into that Bill—it was part of a tidying-up exercise; "simplification" was the euphemism used—but the fact that it had some 1,300 clauses shows that we have some problems in our corporation tax system. It was evident that what was required was not just telling the press about closing loopholes but genuine simplification of a regime of allowances and reliefs that interact with each other, are extremely complex and set a very confusing picture for foreign investors who come to this country. It is a shame that the opportunity was not taken to make more of simplifying the corporation tax system as part of the way out of the current crisis.
	There is huge scope for simplifying the system even further. For several years, I was an inspector of taxes— [ Interruption. ] I hear cries of "Shame!" from my hon. Friends. I remember that when I first started, all the income and corporation tax Acts could be put into a reasonably small box that could be put into one's briefcase and taken home. That is no longer so, which is a great shame. Even then, one had to deal with huge areas of enormous complexity, such as transfer pricing.

Stephen Timms: I was coming to precisely the point about Canada, which, thanks to my hon. Friend's contribution and those of others, has been an interesting aspect of this debate. As I understand the current position in Canada, the rate is 33.5 per cent.—at least for most companies—compared with 28 per cent. in the UK. However, as we have heard, the Canadian Government have announced an aspiration to reduce that rate and, in due course, for Canada to have the lowest rate in the G7. Clearly, there cannot be two countries— [ Interruption. ] It is possible, I suppose, to have two, if both countries set the same rate. It is worth pointing out, however, that that aspiration was set before the problems in the world economy that we have seen over the past 18 months. There have been big changes in the world economy and Canada may wish to reconsider how best to address the fiscal consequences of the past 18 months. However, our intention—which was set some time ago and which Canada said a little while ago that it wanted to emulate or even better—remains, but of course we will need to see what happens.
	It is worth bearing it in mind that tax competitiveness is about more than just the headline rate of corporation tax, as has been pointed out. The UK tax system certainly has significant advantages, including a generous and well-developed system of research and development tax credits, relatively low administrative burdens for business, a large tax treaty network and no withholding tax on dividends paid. We are introducing a package of measures in the Finance Bill to reform the taxation of foreign profits, which the hon. Member for Fareham mentioned, enhancing the UK's competitive position as a location for multinational business. We will debate that in due course.
	We in the UK also perform well on other measures, according to the hon. Gentleman's former employer. In "Paying Taxes", a publication by PricewaterhouseCoopers and the World Bank, we rank first in the G7 for ease of paying taxes. We were ranked by KPMG last year as the most friendly country in the world for VAT arrangements.

Stephen Timms: No, it certainly is not, although I do not agree that our announcements about changing the way in which Revenue and Customs is organised, for instance, would lead to that kind of difficultly. If my hon. Friend is aware of a particular problem, I would be happy to hear about it from him and will gladly investigate. However, he is certainly right that such repayments should be made promptly.
	In opening the debate, the hon. Member for Fareham seemed to say at one point that the change could be funded by simplifying taxation. Indeed, it would be a wonderful idea if one could simplify everything and thereby fund the reduction of corporation tax from 28 to 25 per cent. However, as we explored what he is proposing further, the position became clearer. Cutting the rate of capital allowances further could produce an effective rate of tax depreciation significantly below the average depreciation rate used by businesses.
	Businesses with good commercial reason to invest would then find the tax system discouraging them from doing so, which would be a very undesirable state of affairs, discouraging investment by sectors such as manufacturing, transport, communications, retail and utilities, and certainly damaging our international competitiveness by reducing investment in those sectors. My hon. Friend the Member for Coventry, North-West (Mr. Robinson) was absolutely right to underline that point with his experience of working in manufacturing. Indeed, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made that point as well. The hon. Member for Poole (Mr. Syms) did not think that that mattered, because of other benefits that the manufacturing sector was experiencing. It is certainly true that, for example, the change in the exchange rate over recent months has been helpful for manufacturing. However, he would be very ill advised indeed to rob manufacturing in particular of the significant benefits of the current arrangements for allowances. We simplified capital allowances in the Finance Act 2008 to pay for the reduction in the headline rate. Going further could create serious problems. Indeed, the hon. Member for Dundee, East (Stewart Hosie) was right to query the timing of the hon. Gentleman's proposition.
	I hope that the House will reject the amendment. Nevertheless, I underline the Government's commitment to maintaining the attractive tax environment for business that we have in the UK, not least through having the lowest headline main rate of corporation tax in the G7.

Mark Hoban: We have had a wide-ranging and thorough debate on the amendment about reducing the headline rate of corporation tax. It was interesting that the Minister acknowledged the fact that, in the Finance Act 2008, the Government were able to fund a reduction in the headline rate of corporation tax by simplifying the allowances. We discussed the reforms to the industrial buildings allowance and the agricultural buildings allowances in Committee. There is therefore a track record of using the proceeds of simplifying capital allowances—that is, reducing the rates—to fund reductions in the headline rate of corporation tax. Our view is that that go further, in order to reduce the rate to 25 per cent.
	My right hon. Friend the Member for Wokingham (Mr. Redwood) was acting in his customary role as a critical friend, supportive of where we had moved so far, but perhaps keen for us to move further in the direction of reducing the headline rate of corporation tax. My other hon. Friends cited their business experience in talking about competitiveness and about what businesses bear in mind when locating activity.
	Mention has been made of the way in which Governments focus on tax as a means of competing, and I think that more reference was made to Canada in today's debate than perhaps at any time since it was a dominion and part of the empire. It was good that my hon. Friend the Member for Henley (John Howell), a former tax inspector, joined the hon. Member for Wolverhampton, South-West (Rob Marris) as an aficionado of Canada and a spokesman on its behalf.
	We discussed the fact that Canada has a federal rate and provincial rates of tax. I note that the OECD figures suggest that it has a combined rate of 33.5 per cent. If Canada were to achieve its aspiration of reducing the federal rate by 7 per cent., that would bring its combined rate down to 26.5 per cent., which is below the present UK tax rate. If the Minister is keen to match the Canadian rates, some progress clearly needs to be made.
	We discussed the impact of the proposal on capital investment and the possible reaction of businesses to it. Part of the problem that we need to address is the fact that the structure of capital allowances has been so unpredictable in this country. That has made it difficult for businesses to factor into their plans an understanding of what the capital allowance rate might be. For example, businesses planning on the basis of a 25 per cent. writing-down allowance might be surprised to find that there will be a 40 per cent. first-year allowance for this year only. The extent to which that provision will create an incentive for businesses to invest this year is unclear. Many businesses with a longer planning horizon might not be able to respond to such a short-term incentive.
	It is important to have predictability so that businesses can make their plans. That is one reason why we are so keen to flag up our intention to reduce the headline rate of corporation tax, and to fund that reduction through a reduction in the rate of capital allowances. The broader economy would gain huge benefits from moving to a lower headline rate. Such a move would send a clear signal to inward investment that this is the place to come for lower corporation tax rates.
	Such a move would also tackle the issue of businesses moving out of the United Kingdom. I think that my hon. Friend the Member for Poole (Mr. Syms) was impressed by my lengthy list of businesses leaving the UK. Part of the problem is that, when the first few businesses moved, it was newsworthy and people paid attention, but subsequently, a stream of businesses leaving have left. It has become more commonplace and less noteworthy, and people now accept that it is happening. But the fact that it is less newsworthy does not mean that it is less important for us to take action.
	The Financial Secretary to the Treasury talked of several firsts. He said that the UK was the best place for tax compliance and the best place for VAT, but let us not forget our other first. We also have the longest tax code in the world. We beat India by a country mile in that regard. International comparisons do not always work in our favour.
	It is important for Britain to have a competitive tax rate. It is important for inward investment, and for strengthening the economy to make Britain a place where people want to do business. This proposal is only one part of a series of reforms of the corporation tax system that would lead to a better system for business in this country, but it is important that we send a signal that this is something that we are committed to. That is why I shall press the amendment to a vote this evening.
	 Question put, That the amendment be made.
	 The Committee proceeded to a Division.

Mark Hoban: Having engaged in a helpful and thorough debate on amendment 1, relating to the main rate of corporation tax, we must now deal with the small companies' rate. Amendment 2, tabled by me and by two of my hon. Friends, seeks to reduce the headline rate from 21 per cent. to 20 per cent., while amendment 3 seeks to change the fraction from 7/400 to 1/50. I shall say more about amendment 3 a little later. Many of the points made during our debate on amendment 1 about the unpredictability, complexity and uncertainty of the corporation tax system apply to small companies as well, but in the case of small companies there is a more pressing issue.
	There is a little bit of history attached to amendment 2. There has been a long-running debate in Government about the taxation of small companies, and about what tax rate has been appropriate. When I first served on a Finance Bill Committee as a Back Bencher in 2002, the then Chancellor—now Prime Minister—had proposed a zero per cent. corporation tax rate on profits of less than £10,000. What the Government said at the time suggested that they saw the proposed rate as a spur to enterprise which would reinvigorate British business, but that rested on a key assumption which was misplaced then and which, in a sense, has led to some of our present problems: the assumption that only companies were entrepreneurial. That assumption ignored the contribution that can be made by partnerships and other unincorporated businesses to the dynamism of the British economy.
	The flaw in the Government's proposal was that it did not merely overlook the fact that other types of business organisation could be equally dynamic, but triggered a behavioural change. A raft of unincorporated businesses became limited companies, because a gap had opened up between the rates of tax that would be paid by, say, a plumber, depending on whether he was employed, self-employed or a limited company. I believe that it was adequately flagged up at the time that that would happen.

Mark Hoban: That is an important question. It returns us to what was said earlier about distortions in the tax system, and about attempts to persuade people to make decisions that reflect commercial realities rather than being driven by tax considerations. A difficult position arose. Very small businesses—one-man bands—became incorporated in order to take advantage of the fiscal position, which I believed was a flawed decision. I argued at the time that it would lead to a wave of incorporations.
	The problem is that small companies are not measured in terms of numbers: in terms of whether they have one employee or two, three, four or five. They are measured in terms of the amount of profit that they make. On the one hand, there is the wish to create a level playing field for the plumber, the carpenter, the engineer and the IT software support worker, while on the other hand there is a range of businesses which are also incorporated and which are much bigger. In the latter case, the decision to incorporate was probably made on grounds of logic or to admit liabilities.
	What is happening now, however, is that larger companies which nevertheless fall within the profit threshold for small companies are paying the price of the Government's early mistakes. Following the introduction of the zero per cent. rate in 2002, the Government saw what was happening and responded by introducing such measures as a higher tax charge on distributions. Gradually, a point was reached at which, rather than piling complexity on complexity, the Government decided to increase the small companies rate of corporation tax in an attempt to narrow the gap between the rate paid by people working by themselves as small companies and the rate that they would pay if they were employees or self-employed.
	In 2007, the Government finally decided that enough was enough. They scrapped the system, and introduced a 19 per cent. rate. They then set out to increase corporation tax for small companies by 1 per cent. per annum until it reached a top rate of 22 per cent. This was meant to be the year in which it would reach that rate, but, in the light of the current economic circumstances, the Government decided to put the increase on hold. Let me ask the Minister a question that I asked on Second Reading last week. Can the Government give any indication of whether they intend next year to raise the rate to 22 per cent., and to continue on that upward path?
	It was not just the change in rate that the Government considered as a means of tackling the issue of incorporation. They introduced a raft of rules on managed service companies in the 2007 Finance Act, and conducted a long consultation on the shifting of income between husband and wife, which, as far as I can see, has been kicked into the long grass. However, I think that we need to learn the lessons of the original rate change policy. I think that it was misconceived. It triggered certain types of behaviour that the Government have sought to crack down on, and introduced a new complexity into the tax system. It is a sign of the uncertainty and unpredictability in the tax regime for small businesses.

Mark Hoban: I am grateful to the hon. Gentleman for his comments too, but I hope that that is the end of them, as his party colleague, the hon. Member for Taunton (Mr. Browne), was very critical about the length of an earlier speech of mine, which was the result of my being overly generous in taking interventions.
	I have talked about the need to look at the direction of travel of the small companies rate, and about whether holding the figure this year at 21 per cent. is a permanent feature or it is the Government's intention to move to 22 per cent. next year. Many small businesses are finding the current economic crisis very difficult. In October of last year, John Wright, chairman of the Federation of Small Businesses, wrote an open letter to the Prime Minister under the heading,
	"Help or the UK will crumble".
	In the body of the text, he implores the Government to implement Conservative proposals to reduce the rate of corporation tax for small businesses; amendment 2 would reduce the rate from 21 per cent. to 20 per cent. Not only is that a Conservative policy, but Mr. Wright clearly hoped that the Government would introduce it in the Budget. This is what Mr. Wright said after the Budget:
	"In what has been the most crucial budget in decades, the FSB is disappointed that small businesses have been largely ignored".
	In an FSB survey, when its members were asked if this was a Budget for small businesses, 68 per cent. said no. When asked if it would have a positive effect on their business, only 7 per cent. of respondents said yes. A survey conducted by the Forum of Private Business came to a similar conclusion: 97 per cent. of respondents said nothing had been done to ease the burden of costs that they face, and 94 per cent. felt that the Budget did not address the issues threatening the survival of their businesses.
	It was not only business organisations that were critical of the Budget and its impact on small businesses. Theo Paphitis, one of the stars of the "Dragons' Den" television programme, said:
	"The Chancellor forgot that small businesses exist. He also forgot that one in five households in the UK derives its income from small businesses. He also forgot that nearly half of all employees in the private sector are employed by small businesses. In fact, the Chancellor forgot a lot of things."
	One way in which we can help small businesses is by reducing the headline rate of corporation tax for small companies from 21 per cent. to 20 per cent. As with the measure proposed in amendment 1, this is a funded tax cut. I know that the modesty of it will upset the hon. Member for Taunton, but it is the prudent thing to do at present. Again, we will fund the reduction in the small companies rate through simplifying the capital allowances system.
	Earlier on, we engaged in debate about the competitiveness situation for small businesses and how the UK tax regime compares with those of other countries. According to the OECD, our small companies tax rate is significantly higher than that of the US and France, whose rates are 15 per cent. Earlier in the debate, the Government were very keen to highlight that the UK mainstream corporation tax rate was one of the lowest in the G7. Clearly, however, as the US and France—and, indeed, Canada—have lower rates of corporation tax for small companies, we are out of kilter with other countries. My hon. Friend the Member for Henley (John Howell) will be interested in the Canada comparison, and I am sorry that the hon. Member for Wolverhampton, South-West (Rob Marris) is not present to hear about it, although I am sure he will pick it up later. We need to ensure that both the main rate of corporation tax and that for small companies are competitive.
	The measure proposed in amendment 3 is very straightforward—or at least I thought it was when I tabled an amendment last year reducing the fraction concerned to one fortieth, only for the Financial Secretary's predecessor to point out that that fraction was based on the corporation tax mainstream rate being 30 per cent. I have therefore gone back to my calculator, and it is my belief that the fraction should be one fiftieth, under which there would be a very smooth transition for businesses whose profits exceed £300,000, which is the upper threshold for small companies until they reach the full rate for large companies of £1.5 million. I hope the maths of that work. If the House were to agree to amendment 2, then amendment 3 flows logically from that. In our amendments, we both reduce the rate concerned from 21 per cent. to 20 per cent. for small companies and we have got the right fraction.
	May I pre-empt the hon. Member for Taunton in his comments on his amendment 6? I was intrigued by it, and I wish to flag up my understanding of it. The intention appears to be to give further tax relief to small companies based on the rateable value of their premises. Does that not create a risk of giving highly profitable businesses relief simply because they might work from small offices? I am not sure whether that is the hon. Gentleman's intention, but I am sure he will explain the situation at greater length.
	The thrust of taxation for small companies has been disjointed over the past few years. The Government saw it as a spur to enterprise when they introduced the zero per cent. rate back in the 2002 Budget. They then decided that that led to all sorts of inappropriate behaviour and, sadly, by increasing the rate of tax from 19 to 22 per cent., have started to penalise businesses that fall under the definition of small companies but that are not an alternative to being self-employed or employed. I see the emerging danger that we are penalising those small companies that have not sought to incorporate to take advantage of the tax rules, but that incorporated for the right commercial and legal reasons. They are being penalised because of a flaw in the Government's thinking back in 2002. I do not believe it is appropriate for that to continue. That is why I propose this cut in the small companies rate from 21 per cent. to 20 per cent. That, again, will be funded through a reduction and simplification in capital allowances. I hope that the House will support amendment 2.

Brian Binley: Of all the things the Government have done in recent months, one of the worst is to increase corporate taxes for the small business sector. The timing of this proposal has been disastrous, and the Government—and many of their supporters—recognise the problems. The increase has had a depressing effect on small businesses. It has prevented entrepreneurs from starting businesses, and it has certainly stopped small businesses growing. We need to change that situation, and amendment 2 would help to do that. That is why I am so keen that it should be accepted.
	My main point concerns the importance of retained profit to small businesses. Retained profit is the very essence of their growth and survival. Small businesses tend not to have loans or be involved in over-complicated financial support—they simply have an overdraft. Therefore, the amount of money left at the end of the year is a vital consideration for their future growth, and to their protection against bad debt. That is particularly relevant at this time. For small businesses, cash is king and the more that the Government take in corporation tax, the less small businesses have to survive. The objective of most small businesses is simply to be here next year, and the Government could help enormously by accepting the amendment.
	The amendment would also help businesses looking to grasp the opportunities that will be provided by the green shoots when they come. I hope that the Chancellor's projections are right. I want to see the green shoots sooner, rather than later, and a cut in corporation tax would better prepare small businesses to exploit those opportunities. I do not need to tell the Government about the growth opportunities in small business, as they have been well proved. The creativity of small businesses is very valuable for this country, and we need to have them in situ to support the supply chains for our bigger plc companies. However, they will not be in situ if they do not survive, and we will lose that infrastructure. The amendment would be a small measure to encourage small businesses, because it would give them more cash at the end of the year, which would help their survival and their growth when the recession ends.

John Howell: The hon. Gentleman makes a good point. We all need to bear in mind and to stress the support provided by the interrelationship between small and medium-sized companies and larger companies. Many of the points that I made during our debate on amendment 1 are just as relevant to amendment 2. Other hon. Members have mentioned the effect on small businesses of uncertainty within the tax system and the need to get rid of that, as well as of the system's inherent complexity. Indeed, I would argue that those two elements are especially important considerations for the small business sector.
	Getting rid of uncertainty is vital and there is no benefit to anyone in maintaining a complex tax system for small businesses driven by entrepreneurs. It is totally unnecessary to make things complicated or more expensive. Entrepreneurs can be a funny bunch. They are very focused on their idea. I am sure that there are some very good examples of such people on the Conservative Benches and that they will take these comments in good spirit. That focus is the whole reason why their business ideas come up and why they are successful. However, as well as doing all the things that a business needs, they also have to undertake a range of other activities, from being the head cook and bottle washer to being the bookkeeper. I know that—I have been there and have experienced the pressures of going out and getting business while ensuring that the cash flow is working and that there is back-up. The Budget presented a handful of measures for the small business sector, but it did not address the important issue of cash flow. The amendment seeks to address that problem.
	Earlier, reference was made to comments from the Federation of Small Businesses and its chairman, John Wright. The quotation was:
	"In what has been the most crucial budget in decades, the FSB is disappointed that small businesses have been largely ignored".
	The most important word in that quotation is "crucial". His point is borne out in the quotation from the chief executive of the Forum of Private Business, who said:
	"The Chancellor has missed a vital opportunity to produce a Budget for business survival".
	That point has already been made eloquently by my hon. Friend the Member for Northampton, South (Mr. Binley). That point is crucial, because this is about survival. Many of our small businesses are just surviving, and the rate reduction could be of extreme benefit to them.
	We like to think in terms of protecting vulnerable institutions but we rarely think of small businesses as vulnerable. Last night, I was privileged to have in the House members of the Henley-on-Thames partnership, many of whom represent small and medium-sized businesses in and around the town. They individually employ relatively small numbers of people, but collectively they make a major contribution to the life of the town and to its business life in particular.
	In small towns such as Henley, lay-offs are personal. People know each other there and there is a family atmosphere, even when the companies are not necessarily owned by the same families, among the companies that work and do business in the town. It is crucial to reduce the threat that any possible downturn could pose to those companies. Anything that can improve the cash flow, as amendment 2 does, is to be welcomed.
	As I said at the beginning, the vulnerability of such companies results principally from a lack of credit. However, many are vulnerable because they have already had to make cuts in order to save costs. In some cases they have laid people off, and in others they have found different means to make savings. Also, as a result of the recession, many of the service sectors are already witnessing a decline in the number of people seeking their business. When businesses have made all those efforts and cuts in order to stay afloat, it does not go down well at all when they see the money that they have saved going on higher taxes. That is nonsense for them. They do not understand it and it does not encourage entrepreneurs into the system, particularly to begin start-ups.

Brian Binley: May I point out the case of a small company in my constituency that sells wood-burning fires for companies? They cost £200,000 whereas the very big ones cost £500,000. A sizeable grant is available, but what I hear is, "People cannot afford the stuff even though they get a very good grant." That is what I mean about survival. People are not spending, even though the grant incentive is sizeable. Would he accept that?

Stephen Timms: We are undoubtedly in a very serious world economic downturn, and the measures that the Government have taken are helping to support the economy through it. I was speaking to an accountant yesterday, and he told me that his colleagues who work in liquidation are less busy this year than they were last year. He thought that that was because of the success of the business payment support service and the large number of companies that have gained a significant cash-flow benefit from it. The service has been very valuable for business survival, and its scope was widened further in the Budget.
	The hon. Member for Fareham (Mr. Hoban) spoke about the fairness of the UK's corporation tax arrangements for small companies. At £300,000, the UK threshold for the small company rate is the highest in the G7. It is perfectly true that rates in some other countries are lower, though not many are. For example, the small companies rate in the US is 15 per cent., but that applies to only about £30,000 of profit, compared with £300,000 in the UK. The fact that the threshold in Britain is the highest in any of the G7 countries means that companies making a profit of, say, £250,000, or up to the threshold pay the lowest marginal rate on that profit in the G7. Finally, as we discussed earlier, we performed very well in an international analysis of competitiveness.
	The amendments proposed by the hon. Member for Fareham would raise a serious problem of fairness. He acknowledged, I think, the problems that arose when the small companies rate was reduced significantly, as the result was a large incidence of businesses being incorporated, which was motivated purely by tax. The problem with his amendment 2 is that it would return us to precisely that problem.
	It would not be fair to encourage people to incorporate purely to gain an advantage in terms of tax and national insurance payments. We have set out a range of measures to make the tax system fairer across all small businesses, and to reduce the competitive disadvantage faced by unincorporated businesses. The amendment would make that disadvantage greater.
	The number of incorporations per year increased from 230,000 to 320,000 with the introduction of the zero per cent. starting rate. They reached a record high of 450,000 in 2006-07, but they have declined since, following the increase in the small company rate. The amendments tabled by the hon. Member for Fareham would reignite the problem, which would be unfair and a mistake.
	The amendments also pose a substantial fiscal risk—by the way, I accept that the hon. Member for Fareham has got his arithmetic correct this year—because, as the hon. Gentleman indicated, a permanent reduction in the rate would cost something like £500 million per year. He suggested that more changes to capital allowances would pay for that, but he did not give us any information about what they would be. I simply point him to the concerns that I expressed when we debated similar changes to the previous clause.
	I agree with the hon. Member for Taunton (Mr. Browne) about the crucial importance of very small companies to the UK economy, although he accepted that his amendment 6 might not be the best way to identify them. I was not quite clear about what relief he had in mind, but he made some important points.

Mark Hoban: This has been a useful debate, especially in having drawn on the experience of my hon. Friends the Members for Poole (Mr. Syms), for Henley (John Howell) and for Northampton, South (Mr. Binley), who have all been involved in small businesses. My experience before entering Parliament was largely confined to large businesses; in my professional practice, I had little contact with small businesses, but I have got to know the sector well in my role as a constituency Member of Parliament.
	I have a great deal of respect for small business men, because they really do put themselves on the line in growing their businesses and taking day-to-day responsibility, not only for their own future, but for that of their staff. My conversations with them over the past few months have brought home to me how tough they are finding it to survive in the present economic climate. They are worried about their cash flow, for example. The Financial Secretary talked the tax payment deferral scheme, which I welcome, but before the Government announced their scheme, the Conservatives proposed a six-month deferral of payment of VAT, recognising the importance of cash flows. The hon. Member for Taunton (Mr. Browne) talked about smaller businesses. We also proposed measures on national insurance that particularly affected micro-businesses employing four or fewer members of staff.
	There is a judgment call to be made on the small companies' tax rate. The Minister is right to point out that not all small companies are small businesses. He says that there are 4.7 million small businesses in this country, three quarters of which are unincorporated, leaving about 1.2 million small companies, of which 400,000 pay no corporation tax. We are therefore talking about 800,000 businesses across the country that fall into the small companies' rate of taxation. This debate is important to them.
	We have to decide the extent to which we should be focusing on how people used incorporation for tax planning and crack down on that, or incentivising those small companies that incorporated for legitimate economic and legal reasons. That is where the division is between the Conservative party and the Government. The Government see incorporation of small companies as a way of managing down tax bills and not paying what is fair. In my view, and that of my hon. Friends who have had experience of running small companies, the increase in the small companies' rate is not a matter of fairness. We believe that the increase is having an impact on their ability to retain profits which, as my hon. Friend the Member for Northampton, South said, is important to their ability to build up reserves for the future and to fund investment.
	In our judgment, the small companies' rate of taxation should fall, to incentivise genuine small companies and encourage their growth and future development. The rate should not be increased, as the Government would use it, as a means of cracking down on tax avoidance. That is the dividing line between the Conservative party, which wants to support entrepreneurs, and the Government, who have seen fit to crack down on them by increasing the small companies' rate of corporation tax. The Government's argument on tax-motivated incorporation is, I think, an excuse for a revenue-raising measure, increasing the tax take from small businesses. They have sought to compensate for the increase through the annual investment allowance, but that is available to all businesses, not just small companies, so on average small companies will be worse off as a consequence of the changes that the Government have announced.
	Because we want to support entrepreneurs and because we recognise that people have set up limited companies for genuine purposes, and not only for the purpose that the Minister says, we want the small companies' rate of corporation tax to be reduced. We have set out clearly how we would fund the reduction through reforming the system of capital allowances—our proposals are costed. I shall press the amendment to a Division, because it is important to send a clear signal to this country's small companies that we have their interests at heart—we do not regard them as tax dodgers or tax avoiders and we want them to flourish and continue to grow. That is my party's policy; it is not the Government's policy. I therefore ask my hon. Friends to vote for amendment 2.
	 Question put, That the amendment be made.
	 The Committee proceeded to a Division.

Sylvia Heal: I ask the Sergeant at Arms investigate the delay in the No Lobby.

Jeremy Browne: I beg to move amendment 8, page 4, line 2, at end insert—
	'(1A) The Chancellor of the Exchequer must, not later than 1 April 2010, compile and lay before the House of Commons a report containing an assessment of the impact of the temporary VAT rate reduction on—
	(a) UK economic growth,
	(b) the competitiveness of small and medium-sized businesses, and
	(c) the disposable income of low-income households,
	for the period during which the rate reduction had effect.
	(1B) A Minister of the Crown must, not later than 1 May 2010, make a motion in the House of Commons in relation to the report.'.
	I am grateful for the opportunity to speak on a subject that most people would regard as a central feature of our debate on the Finance Bill—the Government's decision to use a reduction in VAT as a way of injecting extra money into the economy and trying to deal with the recession. Members will be familiar with many of the arguments, but before I make some slightly more general comments, I shall just explain the amendments that I tabled. Amendment 7, which has not been selected, but which appears on the amendment paper—I hope I am not out of order, Mrs. Heal, if I briefly mention it, because it illustrates the direction in which I am seeking to move Government policy—seeks to bring forward the day on which the VAT reduction from 17.5 to 15 per cent. ceased to apply to the date on which the Bill receives Royal Assent, which we believe is the earliest conceivable date on which that temporary reduction could be ended. The amendment was not accepted for entirely understandable reasons to do with revenue implications, but it nevertheless remains our intention to try to encourage or force the Government to bring forward that measure to the earliest possible date.
	Amendment 8 is much more wide-ranging and benign, and provides an opportunity to review the success or otherwise of the Government's policy. Inevitably, such a review could take place only after the effects of the policy had been experienced, so it is not as immediate as the change proposed in amendment 7 or, indeed, a proposal to reject the clause as a whole. However, it provides a useful opportunity to discuss the Government's strategy as a whole. Many right hon. and hon. Members will be familiar with that strategy.
	The Government are running a massive deficit—£175 billion this financial year, and £173 billion in the next financial year, if their assumptions are correct—so there is a legitimate debate to be had about the extent to which the Government can afford to borrow more to stimulate the economy. My party's view is that there is merit in fiscal stimulus—trying to inject an extra boost into the economy will help us to get through the recession quicker, and the best way we can address our public finance deficit is to get the economy growing again. After that, we will have to ask questions about additional tax revenue, and about savings in the public sector. The immediate task, however, is to get through the recession and out the other end, growing strongly again. Some sort of fiscal stimulus, in my party's view, is the right way forward, if it is affordable.

Jeremy Browne: I not only acknowledge but completely agree with that.
	The starting point for us, for the Government and for others was whether it was possible to afford some sort of fiscal stimulus. The answer, in our view, was yes, although it would be limited in scope because of the state of the public finances. The question that then arose was what form that fiscal stimulus should take. The Government's view, as I understand it, was that a VAT cut would be a good way to go, partly because it could be introduced speedily—no doubt the Minister will put the Government's case; I do not with to misrepresent it, but I will explain my view. They thought a VAT cut would incentivise people to spend money, which would provide the sort of stimulus they believed would be advantageous in the short term. They also believed it would be beneficial for individual consumers. I remember their making the case when it was introduced that it would save money for typical households, and we were given examples of those savings. However, when some retailers did not pass on the VAT reduction, the Government then made the case that it helped the margins of those retailers. I accept that there was a degree of truth in the Government's position, even though to some extent they were having their cake and eating it: when the VAT cut was passed on, it would help consumers, and when it was not, it would help retailers and businesses.
	That, as I understand it, was the Government's case for the VAT cut. It is not a case that my party finds compelling, and that view is shared by many hon. Members, including Government Members. There are numerous reasons for that but, first, the Government unfortunately cut VAT in the run-up to Christmas, when retailers were heavily discounting their products. Many companies were introducing cuts of 20, 25, 30 or 35 per cent. and, in that context, the 2.5 per cent. reduction was rather modest. It may have led to a small extra saving for consumers, but it was unlikely to provoke them to make a purchase that they would not otherwise have made. The cuts introduced by the retailers themselves were substantially greater than the VAT cut.
	There was the serious issue, too, of the administrative burdens placed on businesses as a result of the VAT cut. A number of businesses sought to reprice their goods, and if they were priced in a catalogue that had already been printed or if a similar approach had been taken, that presented even greater problems for those businesses. I went into a shop in my constituency where the company introduced the discount, but did not mark it on the price that appeared on the product, as that would have resulted in extra burdens. I remember buying a birthday card for someone for £2, and I paid with two £1 coins. I was given 4p change because the shop had kept the marked price as £2, but I was given a discount, to reflect the temporary VAT reduction, which I had not anticipated. Up to a point, I appreciated it, but I did not necessarily feel incentivised to buy another card once I knew that another 4p was there for the taking. I suppose I had 4p more to spend on other goods and services, but I am not sure that the effect on the economy as a whole, even if everyone received that benefit, was as great as the Government hoped.

Jeremy Browne: Yes; the hon. Gentleman is very helpful. Although it is tempting—and, I hope legitimate, Mrs. Heal—to have a wide-ranging debate on VAT, it is also useful to dwell on the amendment. That is precisely the sort of consideration that the review should examine.
	What strikes me as extraordinary is that a civil servant asked to come up with a £12 billion or £13 billion tax cut could not have come up with one that had less impact on the public consciousness. If the Government were seeking, albeit with borrowed money, to give away that amount of extra money to the taxpayer, they could have taken roughly 3p off the basic rate of tax for a year. They might not have thought that that was the right way to go, or they might have felt that it did not stimulate the economy in the way that they had intended, but every time people got their payslip at the end of the week or month, they would have noticed the sizeable reduction.
	The most problematic aspect of the VAT cut, which it would be interesting to examine in a review, is that it did not have the effect of giving people additional confidence: the mental sense that they had additional money in their pockets. Part of the reason for the Government's changes was to try to give people a sense that things were not so bad, that there was a bit more money to spend, that they could go out there and spend it, and that that would be a self-fulfilling prophecy in its impact on the economy. I do not think that that has proved to be the case, although others may disagree. If there were a cut in the basic rate of income tax, people might choose to save the money. The Government would say that cutting VAT means that people get the benefits only if they spend money—they were keen to encourage people to spend, and continue to be so. However, psychologically, it did not have the impact that it could have had as regards people feeling that they had more money to spend, even if they did in practice because the 4p's were accruing here, there and everywhere as they made different purchases.

Jeremy Browne: The hon. Gentleman makes a good point. I accept that the date in the amendment is arbitrary; I was trying to take account of the typical time scale of such reviews. There is a degree of urgency—very much so—in terms of the economy and the he mentioned unemployment. Of course, the review would be retrospective were it to take place on the date that the amendment envisages, but there would still be some benefit, because we do not know whether the Government may in time seek to use such a device again. It would inform future decisions instead of dealing with the here and now. I take his point that the here and now is an important priority, and we will no doubt focus on that in discussing the clause as a whole.
	The hon. Gentleman takes me neatly on to what the money could alternatively be spent on, which is an entirely relevant consideration. There are, essentially, two schools of thought: that which says that there is no scope for a fiscal stimulus and that which says that there is. My party is of the second school, and while I do not wish to caricature anybody's arguments, I understand that we are in the same school as the Labour party and the Scottish National party. By and large, Conservative Front Benchers—although we heard a dissenting view a few moments ago—do not believe that there is scope for a fiscal stimulus beyond the automatic stabilisers that one would get at a time when the economy was shrinking. Having said, "The Government's policy is to have a fiscal stimulus, and after all they are the Government: they are in power and enacting this policy", we can move beyond that and ask how the money would better be spent. The sum involved is generally estimated to be in the region of £12 billion or £13 billion, although the more popular the Government's policy is, the more effective it is, and the greater the cost.
	We should ask whether this is the best way to spend £12 billion or £13 billion, and whether it is doing two things. First, is it increasing demand and getting us through the recession more quickly than if the stimulus had not been put in place and the extra borrowing had not accrued? Secondly, will we have something to show for that large amount of public spending once it is finished? My party drew up a list, a package, when we were envisaging better ways to spend the entire £12 billion or £13 billion. As I said, with every day that passes that money ebbs away, but nevertheless I shall run briefly through some of the matters that we were talking about.

David Gauke: I am grateful to my hon. Friend. I was going to address that point later, and I will come back to it, but given the enthusiasm in all parts of the Committee for me to address it now, I shall do so.
	Clause 9 will move the date at which we revert to 17.5 per cent. VAT back from 1 December to 1 January. If the clause does not stand part of the Bill, that date will remain 1 December. I shall elaborate on what that means, and I hope that the concerns that my hon. Friend raises, and the Minister's concern that there is no Conservative amendment on this point, will be addressed. The Liberal Democrats tabled an amendment to bring the date forward, but it was not selectable, as is customary in these circumstances. However, we have an opportunity to do what we can to deal with the matter as quickly as possible.
	I return to my points in a more methodical way. The hon. Member for Taunton was absolutely right to ask his two questions—first, whether in November 2008 we could afford the fiscal stimulus that consisted of the VAT cut, and secondly, if we could afford a discretionary fiscal stimulus, whether that was the right way to go about it.
	It is worth my being precise about where there is a difference between the Government and the Opposition, because there is a tendency to point to dividing lines and caricature our positions, and the differences between us can be exaggerated. First, we recognise that there is a place for automatic stabilisers. We recognise that tax revenues will reduce in the course of a recession and that expenditure will increase on certain things, particularly benefits. We have not argued that our fiscal policy should be such that we do not allow the automatic stabilisers to apply. The difference between the Opposition and the Government is about the discretionary fiscal stimulus, not the automatic stabilisers.
	Secondly, let us not exaggerate the significance of fiscal policy in addressing a recession. It is not the sole, nor even the principal, means of addressing a downturn. If I may, I shall quote what the hon. Member for Twickenham (Dr. Cable), who is highly regarded in these matters, said in the debate on 31 March. I did not say that he is rightly highly regarded, but he is highly regarded.
	He stated that,
	"what is actually happening is that the Government are very carefully following the doctrines of Milton Friedman and we have, in essence, a monetary response to the crisis, which is absolutely right, provided it is effective and gets money into the economy."—[ Official Report, 31 March 2009; Vol. 490, c. 815.]
	We supported the reductions in interest rates and recognised that addressing a downturn is essentially about monetary policy.

Stephen Timms: May I press the hon. Gentleman a little more? He is now setting out a view, which is consistent with the comments of the shadow Business Secretary, but does he agree with his right hon. and learned Friend that, if one has a fiscal stimulus, the VAT cut is the most effective sort of stimulus to introduce?

David Gauke: I have seen that comment, but I come back to the point that it is very difficult to disentangle all the various factors involved. The fall in interest rates at that time will have had a substantial effect on sales, as we have seen.
	Having read the CEBR report, does the Minister agree with its view, which differs from that of the Government, on the actual cost of the VAT policy? The report cites a figure of £11 billion, rather than £12.5 billion. I would be grateful if the Minister updated the House on the Treasury's assessment of that cost, and told us by how much he thinks sales will increase. To what extent is the Government's view consistent with that of the CEBR?
	That brings me to the heart of amendment 8, which deals with the need to look again at this matter and for the Treasury to prepare a report and to evaluate the various consequences of the policy. There is a need to assess the policy in greater detail. There is clearly a debate to be had, and the Government will always argue that the policy has been successful. Most of us would argue that the fall in interest rates had a greater impact on retail sales, and the growth in the economy is certainly disappointing compared with what the Government were hoping for when they announced their policy. I am not, however, convinced as to whether the Treasury is the right body to review this, which I say in the context of last month's Budget, whose numbers have been heavily criticised. I will not go through all the detail, but the growth forecasts for 2009 and, more particularly for 2011 and 2012, seem to be out of line with those of most independent forecasters. The Government's reputation for making projections of the public finances has been very poor, and we have seen those projections substantially revised.
	The point I am making is that there is a need for a body independent of the Treasury to make an assessment of projections for growth and for the public finances. We propose an "Office of Budget Responsibility", and there may well be a case for referring this sort of review to a body that is at arm's length from the Treasury in order to assess whether the right approach is being put forward. I raise this particular caveat over the Liberal Democrat amendment, but there is much to be said for looking again at a policy that has not, I fear, by any means provided the best use of £12.5 billion of taxpayers' money.

John Howell: I have some sympathy with that view, and it reinforces the difficulty of using proxies in such matters. The assumption is that because VAT has been reduced, people will go out and buy more VAT-able items. That assumption contains fallacies, and I am not sure that the distinction is very clear. But that is part of the difficulty of using proxies in situations where we do not have a proper counter-factual—what would have happened if what is being examined had not occurred. One can make a best guess and even do some modelling, but there is nothing to actually compare, which is why proxies are used. I agree that it is a difficult issue, but that is why claims that the VAT cut has worked are unsubstantiated and probably far from the mark.
	I have already mentioned the comments from the report that the Financial Secretary is always keen to quote on such occasions about the impact of the date of the change. I wonder whether Ministers actually go shopping any more. Do they realise that Christmas and new year sales occur? That is not a hint for a present from the Financial Secretary, as I am sure that that would need to be declared somewhere. The arguments on the timing have already been made, and I have made my points about the difficulties of assessing the impact of the VAT cut.

Brooks Newmark: I am delighted to be able to make a few points on clause 9. I shall focus on three main areas—many of these points have been much discussed in today's debate—the first of which is the amount of the reduction, which is 2.5 per cent., and the importance of that figure; the second is the issue of the date when the rate reduction ceases; and the third is the cost of the 2.5 per cent. reduction in VAT.
	The Financial Secretary to the Treasury makes an interesting point when he says that such a change can be an effective instrument in stimulating demand, but I am curious about how he came up with the 2.5 per cent. figure. What sensitivity analysis did he carry out about the effects of a 2.5 per cent. decrease as opposed to a 5 per cent. or 10 per cent. decrease in trying to drive demand and the volume of trade? The cut is an attempt to kick-start an economy, but in the two or three debates that I have attended on the issue I have heard that the instincts of retailers and consumers were that it would not suddenly drive people to go out and purchase more. When the 2.5 per cent. cut came into effect, did the Financial Secretary rush out and start buying more retail goods? Now that the VAT rate is down to 15 per cent., what has he gone out and bought that he would not have bought at the 17.5 per cent. VAT rate? Perhaps he can tell me how his shopping patterns changed.
	It was also interesting to hear the discussions and observations about some of our continental competitors. It was interesting that the French attacked the reduction as a not particularly effective way of stimulating demand. We heard similar criticisms from the Germans and the Dutch, and even from the IMF—I think that it was the IMF chief economist who had no confidence whatsoever in the 2.5 per cent. VAT cut. As I said earlier to my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), was it some sort of jealousy on the part of our European competitors? Were they suddenly nervous that huge volumes of trade would shift across continental Europe and across the channel, and that the Germans, French and Dutch would suddenly begin moving their trade from Germany, France and Holland into the UK to buy our goods merely because of this 2.5 per cent. cut in VAT? Somehow, I think not. I think that they were making an objective assessment that the 2.5 per cent. was not enough to move the dial with respect to individual buying patterns.
	The proof of the pudding can be found in the evidence of experts—that is, the evidence of the people who run some of the big retailers. We have heard Justin King's comments. Retailers are cutting their prices by 15, 20, 30, 40 and sometimes even 50 per cent. to try to drive trade into their shops. As people wander down the street, wondering which shop they should go into, a sign in the window of a shop that says, "2.5 per cent. cut in VAT", across the street from a retailer advertising a 30 per cent. cut in the price of its goods will not drive people in to the shop with the 2.5 per cent. cut.
	We should focus on talking to some of the smaller businesses, as I did in Braintree and Witham, two of the towns in my constituency. I did not get a sense from any retailers there that the 2.5 per cent. cut would drive up volumes of business, but those volumes need to be driven up, because I have seen some major retailers in my town centres—particularly in Braintree—simply shutting down and leaving because the business was not there. The 2.5 per cent. that the Government chucked at them to try to drive up trade did not really work, I am afraid.
	My next question for the Minister concerns what analysis he, his civil servants and the various people from consultancies who work for him have done. What uplift in the volume of retail trade can be attributed directly to the 2.5 per cent. VAT cut? How has it affected growth in the retail sector? Has it led to a sudden growth in our GDP, a point raised by my hon. Friend the Member for Henley (John Howell)? Those are pertinent questions, but my main interest is to know whether the Minister and his family rushed out and started to buy more as a result of the VAT cut. What goods did he end up buying?
	My next question concerns the date on which VAT will return to its original rate. In our previous debate on these matters, my hon. Friend the Member for Bournemouth, East (Mr. Ellwood) said that the 31 December date was very inconvenient— [ Interruption. ] From a sedentary position, my hon. Friend the Member for Ludlow (Mr. Dunne) reminds me that he made the same point, and retailers around the country agree. My hon. Friend the Member for Bournemouth, East has observed that 3 January would be more convenient, and better than attempting to get retailers to change their VAT system at a peak time when they are trying to drive up sales.
	I am curious to know why the Minister is so keen on the 31 December date. Has he chosen it because it is the end of the calendar year? The end of the year for retailers is usually later, as I suspect that my hon. Friend the Member for Ludlow will explain in more detail when he gets the opportunity.
	The 2.5 per cent. cut has not really worked. I have been persuaded by the argument from my hon. Friend the Member for South-West Hertfordshire that it has not been a big success and that we should cut our losses and go back to the 1 December date. That would be better than extending the misery for another 31 days— [ Interruption. ] The hon. Member for Glasgow, North-West (John Robertson) is saying something from a sedentary position. Does he want to make an intervention, or is he just talking to himself? He is clearly talking to himself.
	I am not persuaded by the Minister. I hope that he will explain why adding the extra 31 days will be so important. Why has he chosen 31 December as opposed to, say, 3 January? As I and other hon. Members have pointed out, it is probably the worst day of the year to choose to change the rate back up to 17.5 per cent. from 15 per cent.
	The third area that I want to spend some time on is the issue of cost. A number of figures have been thrown around, and it is clear that the process could be quite expensive for retailers. It has been estimated that it will have cost them about £90 million to implement the 2.5 per cent. cut, and that it will cost them another £90 million to change the rate back up to 17.5 per cent. Does the Minister have any figures that will help in estimating the cost to retailers of implementing both changes in a fairly short period?
	Is £90 million an accurate figure? My hon. Friend the Member for Henley mentioned a much bigger figure—£300 million—for the cost to retailers, simply to meet the costs of compliance, let alone consulting fees and so on. What does the Minister think of that figure? Is it reasonable? It is important to consider the expense for retailers, because it is not only the big retailers who are affected; they can probably handle issues of compliance and implementing systems to deal with the changes. It is the SMEs who struggle to deal with the constant shifting of the goalposts on VAT. It is inconvenient to them. They want to spend their time, not dealing with compliance and other regulatory issues, but improving their trade. The cost of having to hire more people, perhaps half a day extra a week or even a month, is a meaningful amount to them, because, as we all know, retailers work on very thin margins. I am trying to gain an understanding of the costs to retailers. I would be interested to know what homework has the Minister done on that question.
	Moving from the cost to retailers to the cost to the Exchequer, a figure of £12.5 billion has been quoted. Is that figure accurate? What does the Minister think? Does he think it is less than £12.5 billion or more—£15 billion? Have patterns of buying changed, thus changing that £12.5 billion figure, which is constantly bandied around? Clearly, the right hon. Gentleman will be unable to give me an immediate answer on changes in buying patterns, as he has just left the Chamber.
	I have asked the Financial Secretary several questions. One is to do with the amount of the VAT reduction—2.5 per cent. Why not 5 per cent.? The second is to do with the date of the change. Why has 31 December been chosen—perhaps one of the most inconvenient dates in the calendar year? Why not 3 January? What is his real objection to the suggestion made by my hon. Friend the Member for South-West Hertfordshire, that the Government should stick with 1 December? My third question is to do with the costs. We have heard several figures, including £90 million for the costs of implementation, doubling to £180 million when the rate is shifted back; and my hon. Friend the Member for Henley talked about £300 million in costs. What does the Financial Secretary think of that figure?
	In the words of my right hon. Friend the Member for Witney (Mr. Cameron), it certainly appears that the Prime Minister's VAT cut was an expensive failure. That is why the Conservatives propose keeping to the date of 1 December.

Philip Dunne: As the deputy chairman of the all-party group on diabetes, I take a particular interest in the level of obesity in this country. I suggest to my hon. Friend that although the Government have, in order to keep medical bills down, made some strides to reduce the intake of individuals who consume too much, not enough has yet been done in that regard. A lot more could be done. I do not think that obesity measures are the reason that the volume of food sold has declined.
	The figures for April showed an overall increase of nearly 5 per cent., as I have said. That could well be attributed to changing patterns—to changes in the date of Easter, a time when retailers put on special promotions and people like to spend money because they are off work, and, of course, to changes in that favourite in the retail trade, the weather. In 2009, Easter was in April, but in 2008 it was in March so sales were typically lower the month after Easter than they were in Easter month. The weather this April, as hon. Members will remember, was balmily sunny, and many of them will have joined my family—well, they were not actually with my family, but they did the same thing as us—in having Easter lunch outside in the sunshine, which was something that we did not do in 2008. We managed to do it in April 2007, which presaged one of the wettest summers on record, and I hope that that is not a portent for this summer's weather. The weather this April was good, but the weather last April was bad, and those two factors may well account for a large part of the increase in overall sales.
	Indeed, Stephen Robertson, the director general of the British Retail Consortium, said as much. He said of the sales figures:
	"A sunny Easter that fell in April this year is the key reason why overall sales are up compared with last year when Easter was in March and miserable."

Philip Dunne: The whole House will be astonished at that information, and I am grateful to my hon. Friend for bringing it to our attention.
	I should like to make two other brief points to Ministers about the clause. The first is an issue that I raised when the VAT cut was first announced last autumn: the extraordinary impact on the sectors of our economy that have the benefit of flat-rate VAT arrangements. By introducing the measure with such haste, the Government failed to take properly into account the consequences for the many sectors that benefit from such arrangements. Like, I am sure, almost every other hon. Member, I have had constituents writing to me complaining that, far from seeing a reduction in VAT as a result of the 2.5 per cent. general cut, their customers have seen an increase because the Government have failed accurately to calculate changes to the flat-rate arrangements. Many businesses are having to impose on their customers a higher flat-rate charge during this period of the so-called VAT cut than they did previously. That is quite extraordinary, and the Government have failed to provide a proper justification for it at any point. I hope that they will revisit the subject, even at this late stage.
	Finally, I should like to touch on the point made forcefully by my hon. Friend the Member for Braintree (Mr. Newmark) about the date. I also mentioned it in the Second Reading debate. It is quite extraordinary to choose a Thursday to introduce a significant change that will require the re-ticketing of every item, on and off the high street, that is subject to VAT. As my hon. Friend said, the only thing that the proposal has in its favour is that it is the calendar year end. It is not a month end or a week end; in most cases, it is not a financial year end. If the Minister had any familiarity with retailing, he would recognise that most retail financial year ends vary. They will typically fall at the end of January, not the end of December, but they vary according to the calendar. If it is, say, 31 December, it will be the final Saturday of the month closest to that date, not a Thursday.
	I ask the Minister to consider something that might be familiar to his Parliamentary Private Secretary and to many of his other colleagues. Has he had any discussions with the retail trade in Scotland about what the impact might be of introducing a significant change requiring a large number of manual amendments to stock price items after close of business on Hogmanay evening? I suspect that that will be extremely inconvenient to retailers in Scotland, who will have to pay substantially more in overtime to their long-suffering staff for coming into work after lights out on Thursday 31 December, when they may well have other things that they would prefer to be doing. I hope that the Financial Secretary will deal with that point directly.

Jeremy Browne: Amendment 10, tabled by me and by some of my hon. Friends, seeks to prevent increases in alcohol duty for three years unless or until a report on its impact on the pubs and industry sector is undertaken and approved by the House in the meantime.

Tony Baldry: The hon. Gentleman says that the purpose of the amendment is there for all to see. In fairness, however, he has not yet answered the point put by my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands). With respect, I am not really interested in cider. What I in north Oxfordshire am interested in is Hook Norton beer, and I want to know whether the amendment will apply to beer. Why has the hon. Gentleman selected only whisky? Has he done so in order to placate the Scottish nationalists and others on the Benches behind him, and why is the Liberal party not concerned about the future of the English pub and English beer?

Jeremy Browne: Not only do I agree, but the evidence is there for all to see. Six or so pubs are closing on a daily basis, so the camel's back has been broken for them. The margins are fine on so-called liquid sales; the profit made by the publican, be it on spirits, beer, cider or any example that one chooses to highlight, is very modest. That is why so many pubs have, understandably, diversified into food and accommodation, but it becomes extremely problematic for publicans if they are not able to make some sort of meaningful profit from their core business of selling alcohol.

Mark Todd: I was fortunate enough to miss the start of the hon. Gentleman's speech— [ Laughter. ] He may have covered this point in his oration, which has lasted half an hour or so, but I am puzzled about how his proposal relates to the competitive position of a pub against another provider of alcohol. If one simply reduced the duty or altered how the Government increase the duty, it would affect all sellers of alcohol equally. The competitive position of pubs would not be altered one iota.

Jeremy Browne: That is an interesting point. I hope that the review would consider it and make recommendations. I am sure that the Exchequer Secretary to the Treasury could, if she was so minded, say that the reason why the Government wished to oppose the amendment was that they had had a complete change of mind and were upset that the amendment would restrict their ability to cut duty in future years. That would give me a good reason to withdraw it.

Jeremy Browne: I think that the cost will be considerably less than the cost to the taxpayer of the industry continuing to suffer as it does, due to the number of pub closures and the number of other licensed establishments affected. Of course, the precise cost would depend on how many people were consulted. I think that the consultation should be broad, because there are so many groups affected by the issue, including those responsible for postal services and rotary clubs that meet in pubs in my constituency. In the grand scheme of things, the cost is tiny compared to the huge social impact that is felt when the sector is under threat.

Jeremy Browne: Yes, but may I first explain just how many different areas of public life in this country are taken up with alcohol-related sales and production, and quite how profound the impact of Government increases in duty over and above the rate of inflation is on all those individuals and sectors of society? It is important that a report of the type envisaged in amendment 10 is conducted before further increases are introduced. It is quite wrong for the Government to proceed blindly in increasing duty on alcohol, which has had a profoundly adverse impact on many people in the past, without their being fully aware of the consequences for all those different people.

John Redwood: That is quite right, although it takes us into a wider, general economic matter that is not strictly the point at issue in the amendment. The issue that we must consider is the adverse impact of duty escalators on both jobs and prices. The two are related, of course. This is a time when people may be losing a week or two of work a month because a factory is partially closed. They may have lost overtime or one or two days' work a week, or they may even be off work for three or six months because of the temporary closure of big factories, for example in parts of the motor industry. This extra price increase on something that they like to do for relaxation is not good news, and the Government might be underestimating the impact it could have on hard-pressed budgets.
	If alcohol costs too much, fewer people will go to the pub. If fewer people go to the pub, it is more likely that the pub will close. The Government will then be fuelling a vicious cycle of driving more people out of work and causing a further reduction in effective demand, which I am sure they do not intend to do. They tell us that they will do whatever it takes to turn this recession around, but this is another case of their taking actions that cannot be helpful, and which in parts of the entertainment and alcohol industry will be extremely damaging. It is wrong for us to ignore or underestimate the power and passion of the lobbying that we have seen in recent weeks.

John Redwood: Some breweries may experience some benefit on energy, but there may not be benefits on other input prices. For example, I doubt whether their water bills have decreased. Perhaps the news is therefore not as good as the hon. Gentleman thinks, but anything that offers some relief is clearly welcome.
	The amendment states:
	"No further amendment may be made to"
	the relevant section of the legislation to which it applies
	"within three years of the commencement, unless"
	a further condition is fulfilled. My hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) teased out the important point that the amendment unfortunately does not appear to apply to all the types of alcohol we would like it to cover. That may be a slip in the drafting, but it puts hon. Members in a slightly difficult position because we would like to support the whole alcohol industry, not only the spirits sector. I would like the amendment to cover beer, cider and domestically produced wine—that would mean covering all wine—as well as spirits.
	Under the amendment, the condition that must be fulfilled before a further increase is allowed is
	"that the Chancellor of the Exchequer shall have compiled and laid before the House of Commons a report containing an assessment of the impact of the increases in alcohol liquor duty on... the competitiveness of licensed premises, and... the level of employment in alcohol-related industry, and the House of Commons"
	would have a chance to consider and vote on the report.
	One colleague asked a perfectly good question about the cost of the report. It is right to show concern about runaway public spending, even when it comes down to such relatively small details. However, given the wide range of civil servants and the substantial recruitment of civil servants that the Government have undertaken in recent years, I hope that existing teams could absorb the task. I am sure that the industry would make any evidence and information available to those compiling the report. I therefore hope that that worry will be allayed if the Government promise to act in a value-for-money spirit and ascertain whether the report could be covered in the normal course of their operations.

John Redwood: I am grateful to my hon. Friend for his expertise in that agricultural sector. I knew that agriculture prices were generally soaring again—because, I suspect, of quantitative easing in Britain and America, which fuels speculative, early moves into commodities, as one might expect from such inflationary actions. My hon. Friend is right to say that it will more than wipe out the possible benefits from energy prices. I was cautious about the extent of those benefits, because they depend on individual brewers' contractual positions—several have long-term contracts, which mean that they do not get the automatic pain or pleasure when market prices move.
	As I was saying, the cost of the report is a reasonable cost and one that can be contained by a sensible Government. It would be a good idea to conduct a wider study and get some information about what the impact might be on jobs and prices. Indeed, that would be necessary in order to make an assessment of the impact on employment.
	When I tried to tease out the view of the mover of the amendment, the hon. Member for Taunton (Mr. Browne), on the balance of forces that are causing so many pub closures, he said he felt that at the moment price increases could be an important factor. I certainly agree with him that social change is also an important factor. There are people who like to drink drinks other than beer who perhaps associate beer rather more with the pub. There are also people who want to drink their drinks at home or in some other social setting, rather than in the local pub. There are all sorts of social changes under way, which has meant a trend against the pub. However, the hon. Gentleman is right—and many hon. Members agree with him—that at this juncture prices could be particularly damaging and that, for a pub or a small brewer, they could be the straw that breaks the camel's back. We know that the rate of pub closures is currently unacceptably high.
	The requirement laid out in amendment 10 is that the report should look into
	"the competitiveness of licenses premises,"
	although that should perhaps be "licensed premises". I take that to mean that the report would have to consider carefully the relationship between pricing and demand and the impact of the duty on that pricing. If the Government's idea is a permanent escalator, we will need to think through the compound arithmetic and see what impact it might have. The Government also need to do those calculations to see what impact the change could have on the level of duty collected, because there will come a point at which it is self-defeating.
	The amendment also invites the Government to comment on the kernel of the argument being put forward this evening, which is the level of employment in the alcohol-related industry. The industry has different components: it has the producers of alcoholic products and all the people involved in marketing, sales and distribution, but it also has those involved in hospitality and leisure who use alcoholic products as part of a wider offering to the public. That is the feature that has led so many hon. Members to be so passionate about the defence of their local pub trade and their local pubs, as important establishments in suburbs, communities and villages.
	When she responds to this debate, I hope that the Exchequer Secretary will understand that the House is responding not just to the amendment before us, but to what lies behind it, which is a very big lobby indeed. That lobby is warning the Government that the industry is particularly exposed and that the Government's revenue-raising actions are increasing the agony that businesses are experiencing generally from the impact of the wonky monetary policy, the credit crunch, and the over-extension and then the sharp withdrawal of credit, all of which have characterised the unfortunate performance of the economy in the past three years.
	I hope that the Minister will remember to explain to the House a little more how her clause 11 operates, because that will stand part of the Bill if the amendment is not passed. I hope she agrees that the increases in the Bill are very large for an economy that, we are told, should be operating at zero inflation. There are also some big steps up in the duty on wine, which do not make a lot of sense to quite a lot of people trying to wrestle with what the Government are seeking to do.

Stewart Hosie: Amendment 12, which stands in my name, is about alcohol duty generally, not the whisky industry in particular, although that is an important sector and I may make a number of references to it.
	Let me start with the comments of the Scotch Whisky Association about last year's Bill. It said that the 2008 Budget had been greeted with
	"extreme dismay...following the Chancellor's decision to raise the duty on Scotch Whisky by a punitive nine per cent.
	Distillers said that the Chancellor had effectively abandoned government moves towards a fairer alcohol tax policy, worsening the duty discrimination against Scotch Whisky."
	Those sentiments are broadly shared again this year. The association has described the proposed rise, following last year's cumulative 13.5 per cent. hike—the largest rise since the 1970s—as
	"a blow to the industry that comes at the worst possible time".
	This year's rise has been described by the SWA as a real-terms 5 per cent. rise, and the association suggests that the Treasury is actually likely to see
	"lower receipts as the duty rise aggravates already tough market conditions in the UK, the industry's third largest market".
	It goes on to say:
	"The duty rise sets an unwelcome precedent for other governments around the world who are also seeking to raise revenues."
	That matter has been alluded to before.
	In general terms, the industry considers this year's rises bad news. They are particularly bad news for an industry that employs 10,000 people directly and 40,000 directly and indirectly in Scotland, and a total of 65,000 directly and indirectly in the UK. It is not only the whisky industry that will be affected but the drinks sector generally, which has already asked the Government to abandon the 2 per cent. above inflation tax escalator on alcohol.
	That request has been based in part on the work done by Oxford Economics, which has looked at the effect of last year's 17 per cent. average leap in excise duty and at the implications of the four-year tax escalator. Its five-year study estimates that there will be about 75,000 job losses in the drinks industry. In the teeth of a recession, having a policy that is likely to lead to job losses is foolish. The study predicts that alcohol sales will drop by over 11 per cent. and that tax revenue from alcohol will be £1.6 billion lower than the Treasury originally estimated.
	For all those reasons, we need to find a better, fairer, evidence-based way of taxing alcohol. We simply cannot go on with the unfairness in the system that results in a half-pint of beer costing 23.06p in duty and a 125 ml glass 26.75p, while a 35 ml glass of whisky costs 31.7p in duty, especially when all those measures contain precisely the same amount of alcohol. That clearly demonstrates the unfairness in the way in which duty is levied on different forms of alcoholic drinks.
	I have not called for the duty rises to be cancelled, although that would be very welcome. However, my amendment 12 calls for the evidence that would allow evidence-based policy making and for the Treasury to tell us by the time of this year's pre-Budget report how much duty is raised from each of the different kinds of alcoholic drink. The amendment also calls for the publication of an assessment of
	"the level of alcohol liquor duty required to be levied on each type of drink on an equitable basis based on the alcohol content to generate the same revenue yield."
	We need that information in order properly to determine, on the basis of real evidence, how to tax alcohol fairly, across the board, and how to protect the vitally important Scotch whisky industry. Other Members will have their own industries, such as cider houses and breweries. We also need the evidence to ensure that, whatever we do, there are no unintended consequences. I am conscious of the pressures on the brewing industry and the pub trade, but also conscious of the unfairness when it comes to the duty levied on whisky.
	For all those reasons—and ignoring the arguments that the Minister made last year about how difficult this might be and how Europe would not let us do it—I think that it is reasonable to ask for an assessment of the duty taken on the different kinds of drinks, and of the level of duty that would be necessary to create equitable taxation in future. With that, I will sit down. I have heard a number of very long speeches today that went all round the houses and missed the point. I hope, Sir Michael, that people will be grateful for a short, concise speech.

Greg Hands: As ever, my hon. Friend makes a telling point, dwelling on the history of many of these issues. I look forward to hearing the Minister's response about that Bill and its impact.
	The amendment is wide-ranging and talks about reaching
	"an assessment of the impact of the increases in alcohol liquor duty on... the competitiveness of licenses premises, and... the level of employment in alcohol-related industry".
	I intend to speak around most of those issues this evening.
	One of the main reasons for my speaking tonight is that I am going to outline why we voted against this year's rises in alcohol duties. We see them as blanket rises that hit all consumers, without making any attempt to curb problem drinkers. There are also significant holes in other aspects of Government policy. For example, while Labour's alcohol duty escalator appears still to exist, it does not seem to apply when the retail prices index is negative. We were told that the escalator was there to provide stability, but that stability went within a few months with the new duty rises in the pre-Budget report, and stability and certainty have been eroded further in the Budget.
	We must ask whether the RPI measure looks forward or backward. We must also ask what will happen to alcohol duty when VAT goes up next new year's eve as "Auld Lang Syne" rings out. Earlier, I think that we heard a concession from the Financial Secretary, who suggested that the change might be made in the early hours of new year's day rather than on new year's eve. A further question is whether the Government's huge duty rises are a result of health concerns or of a desperate effort to plug the gaping hole in the public finances, or perhaps a little bit of both. However, I thought that first we should conduct an examination of exactly what has happened over the last 14 months in relation to alcohol duties.
	When the Government introduced their duty escalator at the last Budget, they raised duty by some 6 per cent. across the board. It rose again by 8 per cent. when VAT was reduced in the PBR, and we have a further increase of 2 per cent. across the board in this year's Budget. Over two Budgets and the intervening PBR, duty on a typical pint of beer has risen by 8p in a year. A bottle of wine now carries duty of £1.61, compared with £1.34 previously. That is an increase of 27p.
	Spirits are up. A bottle of gin carries 82p more duty, and a bottle of whisky carries an additional 86p—although without the Government's embarrassing U-turn in the PBR, the amount would have been even greater. Cider and perry are also up, as is champagne—which does have some impact on the Treasury, judging by last year's photographs of large-volume deliveries to it and to other Government premises on and just off Whitehall.
	Let me first outline some of the current health concerns about alcohol and their relevance to duty and then to the problems facing the sector, before examining the Government's recent record and setting out some of the Conservative solutions. Health issues have been and will be a key part of the debate. There are 37 million responsible drinkers in the United Kingdom, but there are also about 3 million adults who have some form of alcohol dependency and another 8 million who have some kind of alcohol-use disorder. That is the picture among adults, but under-age drinking is a problem that is often highlighted as well. A tenth of final-year primary school children at least say that they drink regularly, and the number rises to 45 per cent. of 14 to 15-year-olds. I understand that, in this context, "regularly" is taken to mean at least weekly. A fifth of 10 to 15-year-olds say that they get drunk regularly. In 2005-06, more than 1,400 children under 14 were admitted to hospital in the United Kingdom as a result of conditions caused by alcohol abuse.
	We all know that alcohol is a major contributor to crime and antisocial behaviour. Half of all violent crime is drink-related. It probably happens in every one of our constituencies, and it is probably happening now, at this late hour. One of the interesting aspects of being an inner-London Member of Parliament without a second home to return to in the evening is leaving this place after a 10 pm vote and arriving at Fulham Broadway tube station between 10.30 and 11 pm. The scene is not yet in full swing, but the thumping music makes the whole street vibrate. Drunken youths are already marauding, and on some occasions fighting has started. That is one of the many reasons why Hammersmith and Fulham council is clamping down on late licences, as far as it can under Labour's disastrous Licensing Act 2003. It was the first council in Britain to pay for 24-hour beat policing teams in both Fulham Broadway and Shepherd's Bush town centres.

Rob Marris: The hon. Gentleman makes a powerful case for voting down amendment 10, which calls for research into the competitiveness of licensed premises and the level of employment in alcohol-related industries. From the hon. Gentleman's speech, he appears to have done all that research already. Will he confirm that he will vote against the amendment?

Brooks Newmark: I invite my hon. Friend to come to Braintree, which is a bit closer to London. My constituency is semi-rural and contains more than 40 villages. The pub is the heart and soul of many of those villages, but Labour's policies are destroying them, one by one. That not only costs jobs, but affects the whole nature of the village. Many of the villages in my constituency no longer have pubs, but they did five years ago.

John Hayes: You have guided us to the exact issue of the amendment, Sir Alan, and it makes specific reference to the relationship between duty and competitiveness and the survival of the industry, as my hon. Friend has made clear. If we are not going to accept the amendment—I will be guided by my Front Benchers, of course—should not the Government at least conduct some sort of thorough research such as that which my hon. Friend is articulating and which is argued for in the amendment?

Tobias Ellwood: My hon. Friend is making a powerful argument about the level of duty. The duty hits the breweries, which were told that it would be only temporary and that it would act as an offset to the VAT cut—which was also supposed to be temporary. However, the Government have not said that because VAT is about to head back up, alcohol duty will head down again.

John Hayes: Like my hon. Friend, I make a strong case for rural public houses—indeed, just a week ago, I was in The Bell Inn in Weston Hills in my constituency attending a "save our pubs" campaign meeting, which illustrated to me the communal effect of pubs. Have the Government conducted a study—there are certainly no background notes—of the wider effect of the trade and its impact on employment and social value in our rural areas? If not, why not?

Greg Hands: I thank you for that guidance, Sir Alan.
	It is worth remembering that the VAT cut—the Government's much vaunted scheme to inject a bit of life into the economy—which was linked to the big rises in duty in the pre-Budget report, provided almost no benefit to pubs and breweries, because the VAT cut was netted against all the duty increases. It also caused big problems elsewhere, costing businesses a huge amount when making the necessary changes to prices. Industry sources estimate that the changes in autumn—both the VAT cut and the duty changes in the PBR—cost every pub or bar an average of £570, which does not take into account any management or staff time involved. The industry believes that the cost will be the same, or similar, when VAT goes back up again, but this time, it appears that it will not be offset by a reduction in beer, wine and spirits duties.
	The wine trade has also been suffering, falling for the first time in many decades. There was a very small fall during the last recession, but the figures are nothing like the present ones. Although it is not alone, it is Britain's beer and pub sector that is under pressure, and many outlets will not survive the downturn.

Greg Hands: I certainly agree with my hon. Friend, but I fear that if I comment on that, I shall stray away from the purpose of the amendment. Alcohol duties are only one part of the picture, but they are an important part.
	On the Government's approach and specific points arising from the Budget and the duty changes, so poorly thought through has been the Government's response to the industry's difficulties that, for the first time, the five UK alcoholic drinks trade associations made a joint submission on this year's Budget on duty levels. Their letter talked about
	"spiralling redundancies and short-time working across the alcohol sector and the unprecedented number of pub closures."
	Their letter combined two main requests: first, to freeze alcohol duties and, secondly, to withdraw the proposal for the alcohol duty escalator.
	I would like the Exchequer Secretary, when she responds, to reflect on whether alcohol duties are close to reaching, or even outstripping, the revenue maximisation point. Given the decline in alcohol consumption in this country since 2004, there is some evidence, albeit perhaps not conclusive, that that point has been reached. The hon. Lady may well say that she is not in a position to give answers to theoretical questions, but I remind her that in the debate on last year's Finance Bill she stated a quite definitive view that tobacco duties had reached the tax maximisation point, saying:
	"duty rates are close to revenue maximisation, which is why there has been no greater increase than revalorisation in the Budget." ——[ Official Report, Finance Public Bill Committee, 15 May 2008; c. 221.]
	Will she tonight offer a view on whether alcohol duties have reached that point?
	I am told that the Treasury model appears to show that the tax maximisation point has been reached or is close to being reached, but I am also informed that many in the industry, at least, doubt the robustness of the Treasury modelling.
	As their joint submission showed, producers have felt for some time that the Government are refusing to listen to their concerns and failing to recognise the issues they face. That was most apparent in the pre-Budget report. Now, of course, Ministers claim that the increases in duty were offset by the cut in VAT. I will examine that claim in a moment, although hon. Members who remember the backtracking on whisky will already be sceptical.
	The Government's claim overlooks a key distinction: producers pay duty, whereas the retailers pay VAT. I have met wine producers and importers who, safe—or so they thought—in the knowledge that the Government had introduced a duty escalator to enable long-term decision making, had entered into contracts to supply wine to supermarkets and others at a set price. Producers' and importers' margins are so tight that every bottle they produced after the PBR was produced at a loss until the contracts expired months later, as they had not factored in the additional rise in duty in the PBR. As they were the ones who paid duty, they suffered. Meanwhile, they watched the retailers whom they were supplying charge less VAT, but not always a lower price.
	The Minister will understand that the claim that the duty increase for producers was offset is held in utter contempt in the industry. We have seen time and again that the Government's failure to consult, and their rush to implement duty changes, produced problems they did not foresee. To promise the industry a three-year horizon of stability, and then provide less than a week's notice of a major change only six months later, perhaps marks a new low in the Government's miserable record.
	The VAT cut offset was hardly that, anyway. The PBR suggested that the changes would leave the total VAT and duty on products "broadly unchanged". I suppose that that depends on how broadly one defines the word "broadly", but the whisky increases proved too broad for even Labour's tradition of semantic hair-splitting to spin away. The proposed rise of 8 per cent. in duty on spirits in the PBR had to be cut to 4 per cent. when the Government were forced to admit that they had got their sums wrong. The Scotch Whisky Association, in particular, showed that the rise would have added 47p to a £20 bottle of whisky. The muddle on wine duties that occurred at the same time was never resolved. The increase in duty was supposed to offset the decline in VAT. For wine, that was true only of bottles priced at £6.07 or more, and 92 per cent. of bottles sold in the retail trade are priced at less than £6. That meant that under the PBR, four out of five shoppers ended up paying more for their wine as a result of the duty changes and VAT changes combined. The position was not at all neutral for wine buyers.
	The Government claimed that when they introduced the alcohol duty escalator, it would bring certainty about future duty rises. After the PBR blunder, this year's Budget has actually added to that uncertainty. Traditionally, the indexation element of any duty rise was linked to the retail prices index that prevailed in the September before the Budget. This year's increase applies the RPI forecast for the September following the Budget. Clearly, that dampens the rise in duty in this instance, but it would be helpful to know whether the Government see that as a permanent change in their methodology; if it is not, the promised certainty on those duties has been eroded yet further.
	The uncertainty reached in the industry in the past year beggars belief; there have been hefty duty increases in two Budgets and in the intervening PBR, as well as the introduction of an escalator and a change in the RPI date used for its calculation. That totally throws out the whole certainty argument, which was introduced a year ago along with the escalator. The uncertainty wreaks havoc with pricing, contracts and overhead costs, not to mention the administrative costs of implementing the price changes such as those due on new year's eve. If duty is not put back down when VAT returns to 17.5 per cent., the industry will take another hit. If the escalator is 2 per cent. per annum, why is the industry in practice facing a total rise of 4.5 per cent. in this financial year? That is a critical question that Ministers must answer tonight. At the moment, Labour's escalator appears to contain no certainty whatsoever.
	We need to look at what the purpose of alcohol tax is in the first place. After the pre-Budget report, the Exchequer Secretary said in a debate in Committee in January, when these duties were last raised, that taxation was a very blunt instrument with which to deal with a minority of drinkers and that in her view tax did not have a major role to play. She meant to attack Conservative policy, but we believe that the blanket duty increases have far less impact on health than targeted measures directed at problem drinks and problem drinkers. Her comments were also rather at odds with those of her colleagues in the Department of Health on duty. The Minister of State, Department of Health, the right hon. Member for Bristol, South (Dawn Primarolo) told the public health conference held by the British Medical Association last year that
	"our estimates suggest that higher taxes, if they do feed through to price, will mainly affect the 7 per cent. of the population who drink one third of all alcohol consumed in Great Britain. In England alone, the total number of lives saved up to end of March 2013 will be 3,250 by the Department's own calculations."
	My hon. Friend the Member for Henley (John Howell) wanted to know if there were any Government studies. There was a recent study—the community pub inquiry, by the all-party parliamentary beer group—and the Government's response to it was quite fascinating:
	"It is important that any Government interventions reduce harm without impacting unduly on the majority of responsible drinkers".
	However, that is exactly what they have done. Their duty rises have clobbered the majority of responsible drinkers. Across-the-board rises hit responsible drinkers, but fail specifically to target problem drinkers or drinking with antisocial consequences.
	What other solutions have been proposed? A major controversy is the ability of the supermarkets and the off-trade more generally to absorb the rises in duty compared with the on-trade. France has looked at a scheme to reduce VAT on served food, versus that paid in supermarkets, and has suggested doing the same for the duty paid on served drinks. I would be grateful for a word from the Exchequer Secretary as to whether the UK has been looking at such schemes.

Angela Eagle: I may as well deal with that point now. Our advice is that the cask differential is unlawful as the EU directives are currently written, but there is an attempt to see if we can change that. The hon. Gentleman will know, however, that that can sometimes take longer than we would all hope.

Greg Hands: That clarification is helpful, but in my experience—and as a long-standing member of the European Scrutiny Committee, I do not know how many EU directives we receive every week—it is easy to look at those directives, and pick and choose a little bit from them, but we have to study them and go through them in totality to try to find ways around them to do what we want to do. That is what other European countries have been doing. I would appreciate the Exchequer Secretary's explanation as to whether the UK has been looking at schemes to reduce, for example, the cost of served drinks, which is what the French have done and is a possible way forward.

Jeremy Browne: If I remember correctly, during last year's Finance Bill the Conservative party tabled an amendment relating to the taxation structure. Why was the decision taken not to table such an amendment this year?

Greg Hands: The hon. Gentleman is right to raise that interesting question. We still have the policy that we had last year. However, the calculation this year would be different. A revenue-neutral position looking at different percentages of beer would not be the same this year because of the background changes in the overall beer pricing regime. Our policy is very much the same, but we simply have not done the exact calculations this year that were done last year.
	The Government's duty increases last year had the opposite effect from what we are considering. Under those increases, problem and non-problem drinks alike went up in price. Since the last Budget, tax on beer has gone up by 8p a pint and tax on wine by 28p a bottle. It is worth pointing out that almost all wine consumed in this country is imported, so Labour's devaluation has added a 30 to 35 per cent. premium on top of that. Meanwhile, duty on a bottle of spirits has risen by about 47p on average.
	We want the Government to consider and evaluate a smart alcohol taxation regime, focusing on the drinks most closely linked to problem drinking, such as alcopops and high-strength beers and ciders, and using the proceeds to reduce duties on lower-strength alternatives elsewhere. We should look at what has happened in Australia and Germany, where such approaches have been used to good effect. The Government should seriously consider introducing such reforms here, instead of using health concerns as a cover for a blanket tax rise for responsible drinkers.
	There has been some controversy in this country about the German experiment on higher duty rates on alcopops, introduced on 1 July 2004. Like this country, Germany had a real problem with alcopops among teens. Those relatively high-strength drinks were particularly prone to getting youths drunk quickly; the sweet flavours camouflaged the high and bitter alcohol content. Many have said that the tax increases that the Germans introduced did not work, as youths simply switched to other forms of alcohol.
	The issue cropped up at some length in last year's Finance Bill. In an attempt to separate fact from fiction, I decided to see for myself by talking to a number of those involved in the changes in Germany; the Government's Treasury team will recall that I maintain a regular dialogue with a number of German politicians. I also studied the reports of the Bundeszentrale für gesundheitliche Aufklärung, the federal institute of health information, and the federal Government's own report about the effects of the alcopop tax law on the consumption of alcohol by youths aged 18 and about the market development of alcopops and similar drinks. I recommend that the Minister look at that report, because she would learn a great deal from it.
	The German tax increase on alcopops—we must bear it in mind that alcopop consumption is generally falling, but that alcopops nevertheless remain a problem drink—was quite severe: a whole euro was put on top of the price of a 275 ml bottle. Labour Members' criticisms of the changes during the debates on last year's Finance Bill were partly correct. There was a switch from alcopops to mixed drinks based on beer and wine, but let us look at the figures in terms of pure alcohol drunk. In the year following the alcopop tax rise, wine and beer-based drinks consumption by those aged 12 to 17 rose from 3.9 g per person per week to 5.3 g as a result. By contrast, there was a staggering fall in consumption of spirits-based drinks from 8.5 g per person per week to only 2.2 g. In other words, spirits-based consumption quartered, while wine and beer-based consumption went up by only 35 per cent. In terms of pure alcohol consumed, there was a net change from 12.4 g per week to just 7.5 g. Under the German tax change overall, alcohol consumption by those aged 12 to 17—a very important part of the population whom we do not want to have drinking in general—fell by some 40 per cent., which is a huge success.

Greg Hands: I understand what the hon. Gentleman says, but it is still my understanding that if price and duty are kept frozen on whisky, they have to be raised on other drinks. I appreciate that he has a different view.
	In conclusion, the official Opposition are not opposed to the kind of study outlined in the Liberal Democrat or SNP amendments, but we are wary of a three-year duty freeze while we await the study. We will therefore abstain if amendment 10 is put to the vote. Secondly, we believe that the pub and drinks industry is in some degree of trouble, thanks in part to various measures introduced by this Labour Government, duty being one of them. Thirdly, we believe that alcohol price, and therefore duty, can have an influence on drinking behaviour. It is clearly not the only influence, but duty and price can play a role in combating some of the negative effects of our drinks culture without penalising the vast majority of responsible drinkers. We need a new approach to these matters, and we on the Conservative Benches look forward to providing it as soon as the Prime Minister is ready to face the voters.

Angela Eagle: There is always Treasury modelling, some of it based on tax returns, which are confidential and cannot be shared—I am sure that the hon. Gentleman knows that.
	The Oxford Economics model assumes that alcohol consumers are significantly more price sensitive than the Treasury model suggests. It fails to account for the fact that increases in the price of one type of alcohol often lead to switching to another. It therefore suggests that if beer sales decrease, no other type of alcohol is drunk, which is clearly not true.

Alan Reid: I am grateful to the Exchequer Secretary. She mentioned exports, but the unfairness of the British duty system, whereby spirits are taxed at a higher rate per unit of alcohol than wines are, means that when we complain about other countries unfairly discriminating against whisky in favour of their local brew, they can point to our unfair system. Why, therefore, can we not continue with the system that was in place when the Prime Minister was Chancellor, under which spirits duty was frozen?

The Second Deputy Chairman: Order. I now have to decide whether to accept a closure motion. The Minister is only 10 minutes into her response, so perhaps it would not be reasonable to accept a closure motion at this juncture.

Question put forthwith, That the Question be now put.
	 The House divided: Ayes 275, Noes 56.

The Second Deputy Chairman: Order. There is a loud buzz of conversation in the Chamber that is making it difficult for me to hear what is being said. Perhaps those Members who do not want to take part in the proceedings might leave or, at the very least, keep quiet, so that those who do want to take part can hear what is going on.

Alan Reid: I wholeheartedly agree with my right hon. Friend, who makes an important point. The constant increases in duty—and the Government have promised another above-inflation increase in next year's Budget—will discourage people from investing in the industry and in new distilleries.
	In my constituency, old distilleries have been reopened in recent years—when the present Prime Minister was Chancellor of the Exchequer and froze spirits duty. Under the policy of the present Chancellor, I do not expect to see any more new distilleries opening in the future.

The Second Deputy Chairman: Order. I am loth to interrupt the hon. Gentleman, but we covered much of that ground earlier in the debate, when I do not think he was in the Chamber. He has probably given the hon. Member for Argyll and Bute (Mr. Reid) enough to work on for the time being.

Alan Reid: The price of whisky is going up, mainly because the Government keep on putting the duty up higher than the rate of inflation. We saw it in last year's Budget and back in December, and we are now seeing it again. A successful industry such as the Scotch whisky industry should be encouraged, not penalised by constant rises in duty.
	The Government put forward two arguments for the duty increases—health and the tax yield. However, if health was the reason, the tax per unit of alcohol would be the same for all beverages, with the result that the tax on whisky would come down and that on beers and wines would go up. As for the tax yield argument, there is a severe danger that increasing the duty will lead to a lower yield because of consumer resistance to buying at the higher price.
	The constant rises are likely to have a devastating effect on employment in the industry, so I urge the Committee to reject them tonight.

John Redwood: In the preceding debate, it was very disappointing that the Minister was unable to explain how clause 11 will work in terms of the duty rates, or what consequences she thought the changes would have for jobs and enterprise in the important businesses and sectors involved. She was also unable to give a forecast of how much more damage would be done. She was not even able to say what she thought was the cause of the big escalation in the number of pub closures in recent months, and she does not seem to have much idea of the impact that the measure will have on business in general.
	I am delighted that my Front-Bench team are inviting Conservative Members to vote against the duty measures tonight. If the Government had not spent so much on the banks, or if they were able to control their public spending better, they might not need to raise so much revenue in this rather clumsy way. This change is not the way to get businesses through or out of a recession, but it is deeply damaging to enterprise and prospects.
	Some Labour Members have failed to speak up for their constituents at all, while others have treated it as a subject of some frivolity because it involves drinking. All of them should understand that many people in the business are hurting very badly, and that they are looking to the Government for help and a lead. However, we are seeing again tonight that absolutely no help is forthcoming.

The Second Deputy Chairman: Order. Again, I am not anxious to curtail debate, but I must explain that we are not now going over the amendments that we have had before. With great respect to the hon. Gentleman, he is in danger of doing that.

Jeremy Browne: Thank you, Sir Michael. The amendment is widely drawn and there is scope for overlap, but I was seeking to bring my remarks to a close. The essential point is that the clause will raise revenue on producers, manufacturers and brewers of alcohol. That will damage both them and communities in all our constituencies. I hope that hon. Members of all parties will represent the interests of their constituents by voting against the Government on this matter.

Mr. Deputy Speaker: With the leave of the House, we shall take motions 3,4 and 5 together.
	 Motion made, and Question put forthwith (Standing Order No. 118(6)),